China economy shows stability signs as credit and inflation improve

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 stabilising 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 consumer 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 stabilise,” 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 annual growth target of about 5 per cent. 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 per cent on Monday, snapping a four-session losing streak. The yuan also rallied 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 .