Economic recovery momentum tails off

Home sales dive in July

Housing sales fell 28 percent month-on-month in July, the biggest monthly decline this year, as tight mortgage lending outweighed efforts by local governments to ease property curbs as prices and demand weakened.

The value of homes sold fell to 424.2 billion yuan ($69 billion) last month from 591.2 billion yuan in June, according to the difference between the National Statistics Bureau's data for the first seven months and the first half of the year.

The value of sales in the first seven months fell 10.5 percent to 2.99 trillion yuan from a year earlier, the data showed.

The figures "will hurt sentiment, since the property market has shown no fundamental recovery yet as investors thought", Edison Bian, a Hong Kong-based property analyst at UOB Kay Hian Ltd, said on Wednesday.

"Developers are still very cautious even as local governments are easing policies. Mortgage conditions should ease further, so that reluctant developers will supply more homes."

Cities began relaxing local property restrictions in June amid sluggish sales. Thirty-six cities had eased their policies as of the end of last week, Centaline Property Agency Ltd, China's biggest real estate broker, said in a report.

While more cities are set to follow, buyers remain hesitant as the central bank maintains mortgage restrictions, according to Centaline.

Analysts now fear that the ramp up of infrastructure investment will not offset the rapid cooling of property investment. Infrastructure investment rose 25 percent in the first seven months, while railway investment growth accelerated by 5.4 percentage points to 19.6 percent. That growth did not prevent the record low real estate investment (13.7 percent) dragging down total investment expansion to its slowest pace this year.

"There’s still no real recovery in growth -- at best, we can say that economic performance is stabilizing at a low level," Zhang Bin, an economist with Chinese Academy of Social Sciences was quoted by Bloomberg as saying.

The credit figures "reflect both tightened regulation over certain financing activities and an underlying weak economy," Zhang said.

A bolder credit easing policy has been suggested to shore up the sluggish economy.

China Merchants Bank analyst Liu Dongliang said the central bank may cut interest rates as early as August. Li Huiyong from Shenyin & Wanguo Securities expects an interest rate cut before Oct.

But Zhou from Bank of China cautioned the move was "not that necessary" and implementing the announced policies should be a priority.

He also said the key is to find the cause of the sudden tumble in new credit, as weakening market demand is not sufficient to explain it.

"M2 (the broadest measure of money supply) growth surged to 14.7 percent in June from 13.4 percent in May, before falling to 13.5 percent in July. This is very unusual. The central bank should ensure the stable growth of credit," he said.

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