Business / Economy

Stimulus expectations grow amid soft China recovery

(Xinhua) Updated: 2014-08-28 11:24

However, J.P. Morgan China Chief Economist Haibin Zhu said that its forecast for the second half of 2014 is relatively cautious and he does not expect further policy easing.

Stimulus expectations grow amid soft China recovery
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Stimulus expectations grow amid soft China recovery
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"Front-loading of fiscal spending implies tighter fiscal measures going forward," Zhu said. Zhu added that policy rates will stay unchanged and credit growth will remain stable, citing the central bank's reiteration of its neutral monetary policy stance.

But new credit flowing into the Chinese economy dropped surprisingly in July. Central bank data showed sharp volatility in credit numbers, with new yuan loans falling to 385 billion yuan in July from over 1 trillion yuan in June. Meanwhile, aggregate financing, which includes yuan loans, grew by just 273 billion yuan in July, down from nearly 2 trillion yuan in June.

The central bank attributed the plunge in July's new credit to multiple factors, including strong financing data in June, flagging demand for loans amid downward pressures on economic growth, drops in deposits, and risk control by banks in the face of rising bad loans.

Xu Gao, Everbright Securities chief economist, worried that the weak credit numbers mean insufficient support for economic growth, whether due to weak demand or banks' reluctance to lend due to risk.

He said that since property sector investment can stimulate related sectors, the sector's growth must be maintained so it can help stabilize economic growth. This means more loosening in the sector is expected, he said.

Amid the downturn in the real estate market, some cities have begun to ease market control measures, including removing purchase limits and lowering minimum down payment requirements on second homes. These measures, along with discounted mortgage rates offered by commercial banks to first-home buyers, are significant and their impact remains to be seen, analysts said.

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