Credit growth rebounded in August from very low levels in July, with the sum of total social financing (TSF) – the widest official measure of financing in the economy – and our estimate of underground lending rising to Rmb1,199.7bn in August, up 150% MoM. However, credit growth remained down 34% YoY. 

The evidence suggests that much of the weakness seen in July continued throughout August. Though there are some signs of life in the real estate sector, we continue to believe that, without substantial government action, a significant uptick in growth remains unlikely.

1H14 financial results for China’s largest developers reveal faster debt accumulation, declining profit margins and rising inventories, suggesting that real estate sector risks are starting to rise.

Investors and economists are debating whether recent strong growth on mainland stock markets represents the return of a bull market, or simply a long-awaited readjustment.

A selection of key financial data over the past fortnight.

Trust issuance has continued to slow as the value of maturing trusts are rising dramatically, increasing potential default risks. To date, however, policymakers remain reluctant to countenance infrastructure trust defaults, with defaults most likely to occur within the energy and mining sectors.

Sluggish July data and initial indications from our proprietary surveys in August appear to have borne out our prediction that the apparent uptick in Chinese economic growth seen in June would prove short-lived.

Stricter shadow finance regulations, a series of targeted easing measures by the central bank and market participants’ increasing acceptance of bonds as risk-based investment assets have contributed to a sharp rebound in bond issuance in recent months.