China growth starting to feel pain of regulatory tightening – BBVA

August 14, 2017

HONG KONG - After registering a stronger-than-expected performance in the first half of the year, China’s economy started to show more signs of moderation in July. “In particular, the authorities’ prudent monetary stance and stepped-up regulatory efforts to tackle a number of financial vulnerabilities, including the risky shadow banking activities, overheating property market and debt overhang, seemingly have transmitted to the real economy, says BBVA Bank.

But BBVA is maintaining its growth projection of 6.5%, amid strong headwinds.

“The signs of moderation are broad-based,” says BBVA.

“FAI declined to 8.3% ytd y/y from the previous month reading of 8.6%, indicating that investment started to be influenced by credit shrinking; industrial production decelerated significantly to 6.4% y/y in July from 7.6% y/y previously, and retail sales also slowed down to 10.4% y/y from 11% y/y in June.

“As anticipated, the on-going deleveraging campaign against the financial sector has started to adversely impact the real economy.

“That said, growth moderation, albeit likely to be mild, is expected to continue in the rest of the year. Investment is most likely to bear the brunt of the regulatory squeeze as it tends to raise firms’ financing costs.”  www.bbvaresearch.com (ATI).