Hua Changchu

The sharp decline in July money and credit data could be partly due to seasonal effects and perhaps also refinancing pressure in some shadow-banking activities, given that there was a large maturity of trust products in July.

While these factors seem to be plausible explanations, from the big-picture perspective it is also conceivable that the weaker money and credit data reflect the PBOC's desire to not loosen monetary policy too significantly over concerns of fanning the larger problems of overinvestment and leverage next year.

Importantly, after the data were released, the PBOC announced that it still views the major financial indicators as being in a reasonable band.

We maintain our view that the PBOC will maintain a relatively loose monetary policy stance in the third quarter to support growth. We maintain our third-quarter GDP growth forecast of 7.5 percent year-on-year, with the fourth quarter at 7.6 percent, with upside risks to our third-quarter forecast.

Wen Bin, principal researcher at China Minsheng Banking Corp Ltd

Wen Bin

Credit data fell sharply in July in part because banks were cautious about lending due to concerns over default risks, particularly in real estate projects.

Meanwhile, investment demand declined in the manufacturing and housing sectors.

Trust loans declined by 15.8 billion yuan last month. That change reflected moves by the China Banking Regulatory Commission to tighten oversight of trust products, which are often composed of loans for specific projects, and their related financial activity.

As the economy still faces downward pressure in the third quarter, further stimulus measures are needed to ensure that the nation will achieve the 7.5 percent target for economic growth in the second half of the year. The government should undertake more infrastructure investment to stabilize the economy.