Data Flash is a brief interpretive summary of China’s official monthly economic data release.
- Credit creation slowed more than expected in July, but the People's Bank of China isn’t easing monetary policy yet and has publicly stated it won’t be doing so. This is a positive factor, assuming it persists, for facilitating long overdue economic restructuring.
- The rapid growth of property prices since the beginning of the year, 34 percent in Hefei for example, finally provoked tightening measures from regulators. This regulatory pressure plus the deceleration of monetary growth suggests that the housing up-cycle of the last seven months may soon end. The housing surge was arguably liquidity driven, and not indicative of strong fundamental demand or real economy revival.
- Household mortgage volume (i.e., amount) as a share of housing value surged in the recent credit expansion. In the first seven months of 2016, mortgage volume was approximately 54 percent of housing sales value, up from 35 percent in full-year 2015. An increasing share of mortgage volume to housing value creates a higher risk of negative equity conditions if/when property prices drop.
- The industrial sector shows the slight beginnings of some rebalancing, with production growth shifting from energy-intensive sectors to consumer-oriented sectors. Fixed investment is also shifting from industrial sectors to services.
- However, fixed investment growth is virtually all coming from the state sector and is primarily going into the nonmarket segments of the services sector: health care, education, and public facility management. Private sector investment remains very subdued.
- The government appears to be signaling more tolerance for further slowing in the second half of the year.
