China's bank lending plunged in July as the weakening property sector hit demand for loans, statistics showed as other key indicators slowed, raising concerns for growth in the world's second-largest economy.

Domestic banks’ new yuan loans amounted to 385.2 billion yuan ($62.5 billion) last month, the People’s Bank of China (PBoC) said in a statement, a drastic decline from June’s 1.08 trillion yuan.

Signs of strength in China’s economy have been tempered by nagging worries over the potential for a downturn in the huge property sector to dampen growth.

An official of the PBoC, China’s central bank, attributed the fall in lending to the real estate market “undergoing some adjustments” and “downward pressure in the domestic economy”.

An independent survey of Chinese property prices showed their decline accelerated in July, dropping for the third straight month.

China’s economy grew a stronger-than-expected annualised 7.5 per cent in the April-June quarter, accelerating from 7.4 per cent during the first three months of the year, which was the worst since a similar expansion in July-September 2012.

ANZ Bank economists Liu Li-Gang and Zhou Hao said the July lending data was a significant cause for concern.

“It means that the financial system is engaging (in) a rapid deleveraging process, which could have significant repercussions on the real economy,” they wrote.

“Such a sharp drop in credit is in fact a quantitative tightening, which will lead to high interest rates and endanger China’s macroeconomic objective.”

UBS economist Wang Tao, however, said the drop could be explained by factors including strong deposit and credit growth recorded in June, a crackdown on so-called shadow banking and weak credit demand in the real economy.

“We do not believe these data reflect a credit tightening” by the PBoC, she said in a note.

China’s importance as a global growth engine was underscored by figures earlier in the day showing that Japan’s economy – the world’s third largest – shrank an annualised 6.8 per cent in the April-June quarter after a sales tax increase doused spending.

Industrial production, which measures output at factories, workshops and mines, rose 9.0 per cent year-on-year in July, the National Bureau of Statistics (NBS) said.

Retail sales increased 12.2 per cent in the same month, the NBS said, while fixed-asset investment, a measure of government spending on infrastructure, rose 17.0 per cent year-on-year in the first seven months.

The industrial output figure marked a slowdown from the 9.2 per cent recorded in June but matched the median 9.0 per cent increase predicted in a survey of 15 economists by The Wall Street Journal.

Retail sales growth, meanwhile, slowed from 12.4 per cent in June.

Fixed-asset investment — which is only released cumulatively — came in below the 17.3 per cent reading for the first six months of the year in June, and also below the median 17.3 per cent forecast.

It was a new post-2001 low, when the increase for the whole year was 13.7 per cent, NBS data showed.

By Kelly Olsen