CHINA’S surging credit in August boosted property sales while barely moving the dial on private investment, underscoring the challenge for policymakers striving to support growth while reining in debt risks.

    Aggregate financing jumped to 1.47 trillion yuan (US$220 billion) in August, helping fuel a 39 percent jump in property sales by value in the first eight months. Medium and long-term new loans, mostly mortgages, climbed 528.6 billion yuan. Private investment in fixed assets, meanwhile, stalled at 2.1 percent for a second straight month in the January through August period, matching a record low.

    Months after an unidentified “authoritative person” told the People’s Daily newspaper that China must face up to risks associated with soaring debt levels, policymakers are grappling with how to do that without growth slipping below a target of at least 6.5 percent. At the same time, there’s scant evidence of progress on pledges to rein in excess capacity in industries from steel to cement that are at the center of President Xi Jinping’s efforts to restructure the economy.

    Most of the new credit is going to non-financial businesses that are overwhelmingly opting to hold onto it or use it to pay down debt rather than invest in real assets, said Freya Beamish, a China economist at Lombard Street Research in London. So while the Central Government has flooded firms with liquidity, returns on credit are diminishing, she said.

    Despite the surge in August credit, Bloomberg Intelligence economists Tom Orlik and Fielding Chen said the month’s data may be an aberration that detracts from the trend toward a moderation in credit expansion. While the on-off flow of aggregate financing is unusual, year-to-date it’s up a reasonable 11 percent and efforts to curb shadow banking persist, said Tim Condon, head of Asian research at ING Groep NV in Singapore.(SD-Agencies)