China data signals economy may need urgent policy action

Fri Aug 10, 2012 8:44am EDT
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By Nick Edwards and Xiaoyi Shao

BEIJING (Reuters) - Chinese data dealt policymakers fresh blows on Friday as trade and new bank lending suggested pro-growth policies have been slow to gain traction and more urgent action may be needed to stabilize the economy.

Figures on Friday showing July exports rose just 1 percent from a year ago and that new loans were at a 10-month low added to data on Thursday showing factory output rising at its lowest pace in three years and pricing power fading.

The first hard data of the third quarter has led some analysts to question the strength of what was expected to be the start of a shallow rebound in the economy after growth had slipped for six successive quarters.

"We think the central bank should move as quickly as possible to stabilize the economy. I expect there will be at least one more RRR cut and interest rate cut this quarter," Xiao Bo, economist at Huarong Securities in Beijing, told Reuters.

Some economists say the central bank could move as early as this weekend to ease policy. It has reduced banks' required reserve ratio (RRR) in three steps since November to free up an estimated 1.2 trillion yuan ($190 billion) for new lending and cut interest rates in June and July.

Net new bank lending in July of just 540 billion yuan versus expectations of 690 billion yuan is a big potential cause of concern. Bank loans are the main credit creation mechanism in the economy, which is only in the early stages of reforming capital markets to boost available sources of corporate finance.

The low figure adds to fear of faltering demand from China's two biggest foreign customers - the European Union and United States - which had already seen economists peg back their consensus call for annual export growth to 8.6 percent in a Reuters poll last week.

Excluding a fall in exports in January, the 1 percent rise in July is the weakest since November 2009 and marked a big pullback from annual growth in June of more than 11 percent, Reuters data shows. Shipments to the European Union dropped more than 16 percent.   Continued...

An employee stands next to a container ship at Ningbo port in Ningbo, Zhejiang province June 21, 2012. REUTERS/Carlos Barria