China Center Data Flash: Temporary Stabilization—But No Improvement in Fundamentals

Data Flash is a brief interpretive summary of China’s official monthly economic data release. 

• Despite a surprising loan increase to nonbank financial institutions (i.e., securities and insurance companies), the overall downward trend in loan growth remained unchanged for August. Meanwhile, new loans to households continued climbing, and new loans to nonfinancial corporates continued declining. In accordance with its recent statements, the People's Bank of China appears to be slowing the pace of monetary expansion in response to RMB devaluation pressures and property market bubbles.
• Property prices continued rising in the most overheated cities. Hangzhou announced home purchase restrictions in early September; four of the other cities had already announced tightening regulatory measures in August. A monetary down-cycle directed by the PBoC, plus tightening regulations on house purchasing at the city level, should work to induce a housing market down-cycle. This is arguably necessary, but it is a very delicate balancing act.
• Industrial production improved a little in August, helped by declining industrial inventories. But headwinds are expected both from the anticipated housing market down-cycle and from the modest capacity reduction beginning to manifest as part of the Supply Side Structural Reform program.