Chinese financing slows sharply, but must be put in context with June's boom

Some are panicking about the big drop in Chinese social financing in July, with net additional financing the lowest it has been since 2008. While this definitely worth keeping an eye on, the big decline does have be to be put in context with the unexpectedly large gains in June.

To be sure, this appears to be the interpretation from the PBC, which doesn't appear to be too concerned with the slowdown in the month, putting it down to base effects and seasonal factors rather than something more alarming (at least according to google translate).

Bank loans were particularly weak in the month, although the PBC is suggesting these have bounced back in the early stages of August. These numbers were also surprisingly big in June.

Total trust loans also saw a big dip in July, but were surprisingly strong in June, especially in the context of the problems with the real estate sector at present.

Indeed, the fact there is still, on net, money flowing into these trust products a surprise given rising default risks.

Perhaps these data are a bit of a reality check on the recent shift of momentum in Chinese macro indicators.  It seems likely that growth should remain ok for the next few months, but the bigger picture is that policymakers are still grappling with financial risks and that will act as a speed limit on economic activity.