China's National Bureau of Statistics yesterday flooded the market with new data relating to the health of the domestic economy. While the numbers were a little lower than expected, it was enough for investors to push the Hang Seng Index in Hong Kong to a 12-month high, at 21,074 points.
The headline figure for many observers was July's fixed asset investment (FAI) growth, which was up between 25% and 27%, according to Credit Suisse estimates. The reason for this, said the Swiss-bank in a research note, is that government-driven infrastructure spending has "moderated", but FAI spending relating to housing is gaining pace.
Much of the FAI spending is driven by access to easy credit. Loan growth in July was Rmb356 billion ($51 billion), somewhat lower than the Rmb1,530 billion increase in June. But economists believe that this deceleration should not negatively affect the economy.
The most recent level of lending, argued Ken Peng, Citi's China economist, is sufficient to keep the economy on track. In a recent research note, he said that new credit of between Rmb300 billion and Rmb450 billion per month is enough to keep GDP growing at a rate of around 9%.
There are fears that slowing loan growth could be a sign that the government is reining in easy access to credit, which in turn could dampen the recovery.
"We do not think that the rapid credit expansion since early 2009 is sustainable, and expect normalisation for the remainder of the year," said Qing Wang, Morgan Stanley's China economist in a research note. "This slowdown in loan growth, therefore, should not be interpreted as policy tightening."
And although the latest figures show that China's economic recovery is on track, they were slightly under expectations: "The slightly weaker-than-expected data means an even smaller chance of an imminent change in macro policy and lends weight to those who argue that it is too early to tighten," said Standard Chartered in research published yesterday. Government officials have also asserted that loose monetary policy will continue for the near future.
The need to maintain domestic demand becomes apparent when one looks at the recent trade statistics. In July, exports were down 23% year-on-year, compared to a 21.4% drop in June. And imports dropped 15% year-on-year, compared to a 13.2% decline in June. "The softness in external demand has resulted in a greater reliance on investments as a driver of China's economic growth," said J.P. Morgan's chairman of China equities, Jing Ulrich, in a note released yesterday.
Other data out yesterday included July's consumer price index (CPI), which was down 1.8% year-on-year, and producer price index (PPI), which was down by 8.2% year-on-year. This continues a deflationary trend which started at the beginning of the year.