| China exports, imports fall |
BEIJING Chinese data dealt policymakers fresh blows on Friday as trade and new bank lending suggested pro-growth policies have been slow to gain traction and more urgent action may be needed to stabilise the economy.
Figures on Friday showing July exports rose just 1 per cent from a year ago and that new loans were at a 10-month low added to data on Thursday showing factory output rising at its lowest pace in three years and pricing power fading.
The first hard data of the third quarter has led some analysts to question the strength of what was expected to be the start of a shallow rebound in the economy after growth had slipped for six successive quarters.
“We think the central bank should move as quickly as possible to stabilise the economy. I expect there will be at least one more RRR cut and interest rate cut this quarter,” Xiao Bo, economist at Huarong Securities in Beijing, said. Some economists say the central bank could move as early as this weekend to ease policy. It has reduced banks’ required reserve ratio (RRR) in three steps since November to free up an estimated 1.2 trillion yuan ($190 billion) for new lending and cut interest rates in June and July.
Net new bank lending in July of just 540 billion yuan ($84.9 billion) versus expectations of 690 billion yuan is a big potential cause of concern. Bank loans are the main credit creation mechanism in the economy, which is only in the early stages of reforming capital markets to boost available sources of corporate finance.
China’s bank lending slumped 41.3 per cent in July from the previous month, the central bank said, compounding worries over the gloomy outlook for the world’s second-largest economy. The low figure adds to fear of faltering demand from China’s two biggest foreign customers - the EU and US - which had already seen economists peg back their consensus call for annual export growth to 8.6 per cent.
Excluding a fall in exports in January, the 1 per cent rise in July is the weakest since November 2009 and marked a big pullback from annual growth in June of more than 11 per cent, Reuters data shows. Shipments to the EU dropped more than 16 per cent. July imports rose 4.7 per cent from a year earlier, the weakest pace since April and also well short of expectations for an increase of 7.2 per cent. Ahead of the data, China Vice-Commerce Minister Gao Hucheng had said that it would be a challenge for China to meet its 10 per cent trade growth target in the second half of the year. The minister, Chen Deming, had said in June that China would be “lucky” to achieve the target.
“Those looking for signs of resilience in China’s economic data were merely disappointed yesterday, but they are going to be distraught today,” Alistair Thornton and Xianfang Ren, economists at IHS Global Insight in Beijing, wrote in a client note.
“This complicates the prospects for an imminent recovery. With the export sector losing speed faster than expected, the government’s current investment stimulus plan looks woefully inadequate,” Thornton wrote. Analysts said a fall in consumer inflation in July to a 30-month low of 1.8 per cent should reassure policymakers they have some room to relax policy.
The government though is conscious of the risk of loading the economy up with too much cheap credit, as it did during 2008-09 when it unveiled a 4 trillion yuan stimulus programme and let local governments go on a borrowing binge that saw them rack up some 10.7 trillion yuan in debt by the end of 2010.
Analysts think as much as 2-3 trillion yuan of those loans may have turned sour and might never be repaid. Beijing does not want a repeat performance and it could be one reason for July’s relatively muted new loan data.
“The loan number is quite small, it’s quite a surprise. I think it reflects that the PBOC and banking regulator are concerned about credit risks on bank balance sheets,” Yao Wei, China economist at Societe Generale in Hong Kong, said.
Reuters
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