Oops, that wasn’t on the China economy script, or the one marked steel production (attention Australia).
Lending in China last month slowed sharply – to levels not seen since the dark days of the GFC in late 2008.
And that had a impact on the real economy where investment spending slowed noticeably in July, led by the weakening property sector.
The falls made weaker industrial production and weaker retail sales in July a bit more understandable.
Certainly the country’s statistics bureau fingered the weak property sector in its commentary.
“Due to the obvious cooling of the real estate market this year, real estate enterprises have a fairly strong wait-and-see mentality, so their investment activity is more cautious,” the bureau said in its announcement.
The decline in property sales was 7.6% year-on-year for the January to July period, accelerating from the 6% fall in the June half year.
Despite claims from the country’s central bank, the People’s Bank of China, that credit growth in July was in a "reasonable range," and monetary policy remained unchanged, the reality was more brutal – the data for July had all the appearances of a very sharp slump, echoing the worst seen during the GFC in late 2008.
The data from the central bank showed loan demand weakened dramatically in July, amid growing caution from financial institutions about lending to sectors with rising credit risk, such as property.
In fact financial institutions slashed new lending to just 385.2 billion yuan last month ($US62.6 billion), compared with 1.08 trillion yuan in June.
The broader measure of total social financing fell to 273.1 billion from 1.97 trillion yuan.
Growth in credit was the slowest since October, 2008 (just after the GFC erupted the month before when Lehman Brothers collapsed) and was weaker than even the most pessimistic of forecasts.
The fall in October 2008 saw the national government put together its now famous $US586 billion package of stimulus measures which enabled China to ride out and reverse the slump – a move that benefited economies such as Australia.
The question now is whether this plunge in lending was a one off limited to July. The central bank said yesterday lending so far this month is running at 30 to 50 billion yuan a day.
The slowdown in lending has intensified in the shadow banking system with reports this week that non bank lenders such as trust funds who use retail investors deposits to lend to risky borrowers, are now becoming more cautious.
So far there’s been no sign of a credit crunch in China’s money market as we saw from the middle of last year on several occasions
Other data showed home sales in China fell 10.5% in the first seven months of the year to 2.98 trillion yuan ($US484 billion). Sales were 2.56 trillion yuan in the first half of the year–down 9.2% from the same period of 2013.
New construction starts in the January-July period measured by area fell 12.8% to 982.3 million square meters. This compared with a decline of 16.4% to 801.3 million square meters in the first six months.
Property investment in the first seven months of this year rose 13.7% to 5.04 trillion yuan, slowing from 14.1% growth in the first six months of the year.
The investment figures are a lagging indicator, and reflect continuing activity in projects that started last year. New construction starts grew 13.5% in 2013.
Analysts say the sharp fall in lending in July will impact confidence, even if their’s a pick up this month.
It’s a sign of the growing worries about mortgage lending and financing house sales. That’s despite attempts by a growing number of local governments to make home lending easier.
The news came a few days after the better than expected trade surplus for July of just over $US47 million, with a 14% rise in exports and a surprise 2% fall in imports.
Inflation was also under control at an annual rate of 2.3%, so all looked normal in China with the m,ild stimulus from the national government having a positive impact on activity.
Iron ore imports were the third highest on record at more than 82 million tonnes, and while copper imports were down, and oil imports eased, the falls were not worrying.
Yesterday, the government’s statistics bureau said industrial production rose 9.0% in July from July 2013, down from a 9.2% on-year increase in June.
Industrial production also increased 0.68% in July from June. In June, it rose 0.77% from May.
Fixed-asset investment in non-rural areas of China rose 17.0% in the January-July period compared with the same period a year earlier, down from 17.3% in the first half of the year.
And retail sales in China increased 12.2% in July from a year earlier, slowing from a 12.4% on-year increase in June and below forecasts of a 12.5% increase.
Retail sales also increased 0.86% in July from June. In June, they rose a revised 0.95% from the preceding month.
China’s crude-steel output in July rose 1.5% year over year to 68.32 million tonnes.
But that was down 1.4% from June, and down from the record 70.432 million tonnes produced in May.
Output in the first seven months of the year rose 2.7% to 480.76 million tonnes, it said.
