2023-09-11 13:23:52
Bloomberg — Credit demand in China improved, deflationary pressures eased and the yuan rose, adding to a recent trickle of signs that the economy and financial markets may be stabilizing after a sharp recession.
Strong credit data released on Monday shows that recent measures to strengthen the housing market may be starting to spur household demand for mortgages, while lending to businesses has also picked up. The yuan gained ground after the central bank stepped up its defense of the currency.
These data add to the encouraging data from the weekend, in which consumer prices rose again after the fall in July, although by a narrow margin. Deflation in factories was also reduced.
“Policy measures helped stabilize the economy,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management Ltd. “The key question is to what extent monetary policy has contributed to stabilizing the economy.” “The key question is to what extent economic momentum can be sustained.”
The world’s second-largest economy is trying to regain traction as the ongoing housing crisis and weak confidence slow its recovery, posing a risk to the Government’s annual growth target of around 5%. The improving data for August suggests that July’s dismal figures – which showed consumer prices tilting toward deflation and monthly borrowing falling to 14-year lows – may have been the worst of the recession.
The benchmark CSI 300 index rose 0.7% on Monday, breaking a four-session losing streak. The yuan also rebounded after falling against the dollar last week to its lowest level since 2007, after the People’s Bank of China issued strong guidance and stressed its confidence in keeping the yuan stable.
Government support efforts – including cuts to loan interest rates, mortgage rates and down payment requirements for home purchases – are likely contributing to some extent to the recovery. Economists at Goldman Sachs Group Inc. estimate that the measures announced so far have had a total impact equivalent to about 60 basis points, or 0.6%, of gross domestic product.
Now the question is whether the Chinese real estate sector is capable of definitively turning the corner and raising general confidence in the economy.
Recent policies “may generate a near-term rebound in real estate transactions, but are insufficient to stabilize the housing market,” Goldman analysts wrote in a Sunday research note. If home sales continue to fall and growth slows further, they anticipate further easing measures, such as interest rate cuts or measures to support the housing market.
What Bloomberg Economics Says
“Stronger-than-expected August credit suggests China’s monetary and fiscal stimulus may be starting to gain traction. But declines in long-term borrowing by businesses and households show that private sector demand has yet to rebound, despite signs of bottoming out in surveys of purchasing managers and trade.” – Eric Zhu, economist
Although new medium- and long-term household loans, a proxy for mortgages, expanded after a contraction in July, they remain well below the levels recorded in August 2022, along with those observed before the pandemic.
The improvement in aggregate financing was largely based on the issuance of special bonds by local governments, according to Ming Ming, chief economist at Citic Securities Co.
Local governments increased borrowing in August to increase spending on infrastructure projects. While this can help economic growth, it can also put pressure on financial markets and lead to further easing of monetary policy.
There are also signs that services growth is slowing after being one of the main drivers of the economic recovery earlier this year. This suggests that greater political support may be needed to boost household spending.
Deflationary pressures have not completely disappeared either: The consumer price index remains well below the Government’s official objective, around 3% annually.
Market analysts were also cautious. According to Alex Loo, macroeconomic strategist at TD Securities, although the PBOC’s statements on Monday in defense of the yuan suggest that it is “unlikely to stay on the sidelines,” more may be needed to maintain bullish sentiment.
“Without more notable fiscal support from the authorities, a turnaround in the yuan is unlikely and the rally could prove short-lived,” he said.
Beijing has taken a series of measures since late July to restore market confidence, but the efforts have so far failed to fuel a sustainable stock market rally. The brutal fall in August placed the main local indices among the worst in the world.
The CSI 300 continues to lose about 10% from the peak reached in January of this year. Global funds, for their part, maintain the smallest positions in Chinese stocks since October, that is, they have returned to the point where they were before the reopening rally took off at the end of 2022, according to a quantum analysis by Morgan Stanley from last week.
Chinese credit markets continue to grapple with record defaults as the fallout from the property debt crisis spreads. Average prices for Chinese dollar-denominated junk bonds, most of which were issued by real estate developers, have plummeted to about 67 cents from about 98 cents two years ago, according to a Bloomberg index.
Although they have risen from a 2023 low set last month below 65 cents amid hopes of new support measures for the real estate sector, they remain at levels considered problematic.
— Con la ayuda de Wenjin Lv and Zhu Lin.
More on Bloomberg.com
Read also:
Joe Biden doubts that China can invade Taiwan amid its economic problems
#China #shows #signs #stability #credit #inflation #improve