(Bloomberg) — China’s inflationary pressures have eased slightly and data expected this week could boost demand for credit, adding to recent signs that the country’s economy is stabilizing.
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Consumer prices rose in August – albeit by very small margins – following a decline in July, figures over the weekend showed, while factory-door inflation eased. Analysts expect authorities this week to report an increase in lending last month.
“A lot of the evidence we’re seeing now suggests that the economic slowdown is likely to slow in the coming months,” said Raymond Yang, chief economist for Greater China at Australia and New Zealand Banking Group Ltd. a bit. It will be more of a stabilization than a full recovery.
The world’s second-largest economy is struggling to bounce back as an ongoing asset crisis and weak confidence drag on its recovery, posing a threat to the government’s annual growth target of around 5%. Data for July showed that consumer prices fell to inflation and monthly mortgages fell to a 14-year low, as authorities stepped up efforts to stimulate activity.
Those support efforts — reductions in mortgage rates, mortgage rates and down payment requirements for home purchases — may be helping somewhat. Economists at Goldman Sachs Group Inc. estimate that the impact of government policies is equal to 60 basis points, or 0.6%, of GDP.
While efforts to restore market confidence in Chinese stocks led to brief rallies, investors continued to wait for signs of a strong recovery. The benchmark CSI 300 index is down more than 10% this year from its January high. The yuan fell to its weakest level against the dollar last week since 2007, although it recovered on Monday.
China recently announced that it would make it easier for insurance companies to invest in domestic stocks. The CSI 300 index gained just 0.4% early Monday, snapping a four-day losing streak. A benchmark of Hong Kong-listed Chinese shares fell as much as 1.9 percent; Trading resumed after record rainfall forced markets to close on Friday.
According to a Morgan Stanley quantitative analysis last week, global funds will either hold the smallest positions in China stocks from October or return to where they were before the opening rally begins in late 2022.
More medium- and long-term loans to corporate borrowers will contribute to an expected rebound in credit demand in August, China Securities Journal quoted analysts as saying. But the fact that many of the asset relief measures only came into effect at the end of the month could mean overall finance, the broadest lending rate, did not experience a big jump, according to ANZ’s Yeung.
Analysts have plenty of room for caution as they look to hints of a potential downside.
Recent policies “may create a short-term rebound in property transactions, but not enough to stabilize the property market,” Goldman analysts wrote in a research note on Sunday. If home sales continue to slide and growth slows further, expect more stimulus, including price cuts or measures to support the property market.
There are also signs that services growth is slowing after being a key driver of the economy’s recovery earlier this year. This suggests that additional policy support may be needed to strengthen household spending.
Decline pressures haven’t entirely disappeared either: the consumer price index is about 3% below the government’s official target for the year.
–With help from Shikhar Balwani and Nasreen Seria.
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