Chinese economy continues to sag
China's money supply grew at its slowest pace on record and investment growth sank to its lowest in nearly 15 years as April data showed the world's second-largest economy was still losing momentum despite a concentrated burst of policy easing.
Wednesday's data added to concerns that Beijing's growth target of around 7% for the year is already at risk, and reinforced views that authorities need to take bolder measures to head off job losses and debt defaults by local governments and companies.
The central bank is expected to follow this week's interest rate cut with more stimulus in coming months, while the government may ramp up spending to try to energize the economy, which looks set for its worst year in 25 years.
"It's again worse than what most people had expected, especially on the investment side. All of this suggests that the downward pressures on growth in China are persisting, especially in the industrial part of the economy," said Louis Kuijs, China economist at Royal Bank of Scotland in Hong Kong.
"This type of data will motivate policymakers to further ease on the monetary and fiscal sides."
The People's Bank of China (PBOC) has cut benchmark interest rates three times in the past six months, including a move early this week, on top of reductions in banks' reserve requirement ratio (RRR) and measures to shore up the ailing property market, which accounts for about 15% of the economy.
Kuijs has penciled in at least one more interest rate cut in the third quarter, coupled with more quantitative measures.
Signs of deteriorating conditions abounded in the April data.
Despite efforts to pump more money into the economy, money supply growth slowed to 10.1% from a year earlier.
Banks made 708 billion yuan ($114.11 billion) of new loans last month, about one-fifth less than expected, as slowing earnings growth and rising bad loans made lenders more cautious.
Banking sources have told Reuters that some lenders are not passing on lower borrowing costs to customers, undermining official efforts to boost the economy.
For their part, companies complain they are short of customers, not credit, and thinning profit margins are making it more difficult to pay off existing debt. In addition, a sizeable amount of the loans which are being made are believed to be for refinancing, not new activity.
Policy insiders told Reuters earlier this month that in addition to further monetary easing, the government may also ramp up state spending to shore up growth.
"Such (credit) data makes it impossible for the government to find funding for the infrastructure projects it is planning," said Dariusz Kowalczyk, a senior economist at Credit Agricole in Hong Kong.
"It is clear that more needs to be done in terms of monetary stimulus."