China's economic challenges gather steam as new loans plunge, property fears loom

cnbc.com:

BEIJING – China's economy is running into more challenges.

Credit data for July released Friday showed a slump in demand from businesses and households to borrow money for the future. Real estate problems persist with once-healthy developer Country Garden now on the brink of default. Consumer sentiment is weak.

«The weak July credit data suggest the downward spiral of the property sector continues, and worsening geopolitical tensions add to the uncertainty,» Lu Ting, chief China economist at Nomura, and a team said in a report Friday.

«In Japan during the 1990s, corporates might have paid down their debt to improve their chances of survival, but in today's China, corporates and households are cutting their borrowing due to a lack of confidence (and trust),» the report said.

New local currency bank loans plunged by 89% in July from June to 345.9 billion yuan ($47.64 billion), less than half the 800 billion yuan analysts had forecast in a Reuters poll.

The July new yuan loan number was the lowest since late 2009, according to Reuters.

Those figures «should mark a low» since policy moves in June could have moved up some demand, Xiangrong Yu, chief China economist at Citi, and a team said in a note.

«Yet all the factors just cannot mask how weak credit demand is and how low risk appetite is,» the analysts said, noting expectations for rate cuts by the end of September. Without such cuts, they expect a greater risk that China misses its growth target of around 5% this year.

On Tuesday, China is set to release July economic data that's expected to show no change from June in the pace of growth for industrial production and fixed asset investment, according to a Reuters poll.  

Retail sales are expected to rise 4.7%