The Chinese government, currently trying to manage an economic slowdown in the country, is not following the ill-advised short-term approach to fiscal easing amidst what some refer to as a mild economic crisis with ripple effect throughout the global economy. China is the world’s third largest economy trailing only the European Union and the United States.
The biggest evidence of the fiscal tightening was evident in this week’s new Yuan loans as well as aggregate Reminbi financing data for the month of July. Economists expected a slowdown from June’s new Yuan loans valued at a downward revised CNY1,079.3 billion while aggregate Reminibi financing was also expected to slow down from the upward revised value of CNY1,974.5 billion.
The expectations called for new Yuan loans to be issued worth CNY780.0 billion while aggregate Reminbi financing was expected to be valued at CNY1,500.0 billion. Forex traders received a heavy disappointment as new Yuan loans issued in July were valued only at CNY385.2 billion or less than half of expectations and roughly a third as compares to June. Aggregate Reminbi financing for July was reported at CNY273.1 billion or roughly 20% of expectations and just over 10% the value expected.
The fiscal slowdown continued as evident in the Money Supply data for July year-over-year. M0 rose 5.4%, M1 rose 6.7% and M2 rose 13.5%. Economists expected an increase of 5.7% for M0, 8.6% for M1 and 14.4% for M2 above June’s M0 increase of 5.3%, M1 increase of 8.9% and M2 increase of 14.7%. Fixed assets investment excluding rural investments slowed down to 17.0% in July which missed expectations for an increase of 17.4% from June’s 17.3% increase.
The fiscal slow-down spilled over in other Chinese economic data. Industrial production rose 8.8% in July year-to-date which matched what economists predicted as well as the rate of growth reported in June. Annualized industrial production was reported at 9.0%, missing estimates for an increase of 9.2%. Retail sales rose 12.2% in July year-over-year which missed growth estimates for an increase of 12.5%. This compares to June’s increase of 12.4%.