China Dragon's Breath Is Less Fiery

China's economy is faltering. July data suggest the government will have to provide more stimulus to meet its 5% economic growth target for the year. Most striking is the small but unusual decline in bank loans during the month (chart). It suggests a lack of confidence among businesses and consumers, potentially leading to reduced investment and spending.

China's real retail sales rose just 2.2% y/y during July, well below the 5.1% y/y increase in its industrial production (chart). The excess production is getting exported, which has other countries protesting that China is dumping goods in global markets and exporting deflation, which is what it is doing.