Separate data on Monday showed that prices for new homes in June fell at the fastest pace in nine years.
This is more evidence of the crisis that has engulfed China’s property sector and led to the demise of giants such as Evergrande. The fear is that it could spread to other parts of the economy.
“There are more than 4,000 banks in China and over 90% are smaller, regional banks which are highly exposed to the housing market and local government debt,” says Shanghai-based economist Dan Wang.
She believes Party leaders will “push for consolidation of small banks”.
Another issue is falling prices – a symptom of weak demand.
Producer prices continued to drop in the last month, while consumer prices rose by a mere 0.2%, the slowest pace in three months.
Meanwhile, retail sales in June grew by just 2%, which is below expectations and a sign that consumers are still cautious about spending and uncertain of the future.
“A major concern is the loss of household, business, and investor confidence in the government’s ability to navigate the perilous economic environment,” said Eswar Prasad, former head of the International Monetary Fund’s China division.
Still, questions remain about Beijing’s willingness to deliver the sort of solution that would satisfy observers and the markets.
“The government is reluctant to turn to short-term stimulus plans such as cash transfer to families,” Dan Wang said. “Instead, we expect them to stress once again on bolstering supply chains and high tech.”
That is in line with Beijing’s bets on high-tech industries such as renewable energy, artificial intelligence and chip-making, and exports to revive the economy. Last month, China reported a record trade surplus – $99bn (£76.4bn) – as exports soared and imports struggled.
But even that bet faces challenging odds. Major trading partners such as the European Union and the United States have imposed tariffs and other barriers on goods made in China, from electric vehicles to advanced chips.
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