(Yicai) April 25 -- Misaligned economic and financial cycles were the root cause of the divergence in China’s economic and financial indicators in the first three months of the year, according to a new report by a think tank of the Chinese Academy of Social Science.

China’s financial cycle has deteriorated since 2018, impacted by falling property prices and tighter credit conditions, while economic growth has rebounded, the Institute of Finance and Banking determined based on the ratio of credit to gross domestic product, average home prices, and quarterly data for the Shanghai Composite Index.

First-quarter GDP rose 5.3 percent, supported by industrial production, the consumption of services, and investment in manufacturing, official data showed. But the consumption of goods was weak, with consumer prices falling 1 percent on the prior quarter and edging up just 0.1 percent from a year earlier, with social financing and the credit structure also poor.

Though the economy got off to a good start this year, both prices and financial data have fallen short of expectations mainly for two reasons, the institute said.

First, the pickup in demand lagged the rebound in supply, leading to persistent low levels of inflation due to insufficient effective demand. Second, growth in medium and long-term credit to households and businesses was weak, and the downward trend of narrow money (M1) growth has not been reversed.

The institute recommended that China’s macroeconomic policy should maintain an expansionary tone and pay more attention to sustainability to help market entities repair their balance sheets and support the economic recovery.

According to the report, specific measures should include the central government moderately increasing its leverage, using government bonds for countercyclical adjustments, implementing monetary policies with more price-targeting objectives, timely cuts to the reserve requirement ratio, continuing significant interest rate cuts, stabilizing the real estate market, and boosting confidence among homebuyers and developers.

Editors: Zhang Yushuo, Martin Kadiev