A ninth consecutive monthly fall in exports in July came as another reminder that China’s economic recovery would not be without its setbacks. It was not the only indicator showing a decline. Urban fixed-asset investment growth fell 32.9% between January and July from the first-half figure of 33.6%. Industrial production was up, but didn’t meet expectations.
Investors, however, appeared more worried by the decline in another set of figures: Bank lending fell to US$52 billion in July from more than US$219 billion in June, and the year’s first sizable correction in domestic stock markets came days later.
Despite fears of tightening, economists say Beijing has scope for continuing a moderately loose policy.
"[The economy] is not overheating," said Wang Qian, an economist at J.P. Morgan in Hong Kong. "In fact, I would say that given the very weak exports, I do not think the economy is back to solid footing yet."
The government would seem to agree. In explaining its desire to maintain a relatively loose monetary policy, Beijing has said the economic recovery remains on shaky ground. Industrial output data lends strength to this argument: Growth was concentrated in heavy industries, which have been the focus of government investment.
On the positive side, Beijing’s stimulus and a resilient consumer sector have ensured that the country is on track for strong growth in 2009. Ken Peng, China economist at Citigroup, raised his 2009 growth forecast to 8.7% from 8.2%, noting "more signs of durability" in China’s growth outlook. External factors, including a brighter outlook in the US, are also a factor.
But Peng notes that the US$1.1 trillion in new lending in the first half means bad loans remain a risk. "They could be covered up for a long time," he said.