China’s credit demand improved, deflationary pressures eased and the yuan rallied, adding to a recent trickle of signs that the economy and financial markets may be sta- bilizing after a sharp downturn.
The strong credit data published Monday showed recent steps to bolster the real estate market may be starting to lift household demand for mortgages, while corporate loans also picked up. The yuan gained after the central bank escalated its defense of the currency.
Those add to the encouraging signs from the weekend, with con- sumer prices returning to gains after a drop in July albeit by the slimmest of margins. Factory-gate deflation also narrowed.
“The policy measures helped the economy to stabilize,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management Ltd. “The key question is to what extent the economic momentum can be sustained.”
The world’s second-largest economy is trying to regain traction as an ongoing property crisis and weak confidence drag on its recovery, creating risk for the government’s an- nual growth target of about 5%. The improvement in the August data suggests July’s grim figures which showed consumer prices tipping into deflation and monthly loans plunging to a 14-year low may have been the worst of the slump.
The benchmark CSI 300 Index rose 0.7% on Monday, snapping a four-session losing streak. The yuan also ral- lied after falling to its weakest since 2007 against the dollar last week as the People’s Bank of China issued forceful guidance and stressed its confidence in keeping the yuan stable.
The government’s supportive efforts including cuts to policy loan rates, mortgage rates and down payment requirements for home purchases are likely helping the recovery somewhat. Goldman Sachs Group Inc. economists estimate the policy measures announced so far had a total impact equal to about 60 basis points, or 0.6%, of gross domestic product.
Now the question is whether China’s property sector is capable of definitively turning a corner and lifting overall confidence in the economy.
Recent policies “may generate a short-term rebound in property transactions, but are insufficient to stabilize the property market,” the Goldman analysts wrote in a Sunday research note. They expect more easing, including interest rate cuts or measures to sup- port the property market, if home sales continue to slide and growth slows further.