(Yicai Global) July 18 -- Total bank lending in China may be a bit more accommodating in the second half, but will remain relatively tight, with financial deleveraging set to continue, Yao Wei, chief Chinese economist of Societe Generale, told Yicai Global.

'Growing pains' is an inevitable side effect of deleveraging that will ultimately affect the real economy, but some time may pass before the effects eventuate, Yao added.

Tighter government regulation has hardly affected overall property sales, and real estate investment remains strong, she continued. Government regulation has led to a deceleration in property price rises and even negative price growth in first- and second-tier cities, but housing prices have risen sharply in third- and fourth-tier cities.

"The rapid property price growth is unsustainable, however, and when the bloat in property prices end will mainly depend on the general credit situation," she said.

From the policymaker's perspective, financial deleveraging must continue because banks' off-balance-sheet and wealth management products both involve investing short-term funds in long-term high-risk assets, and banks largely lack sufficient capital to cover potential risks. Further, some may have circumvented financial regulation in certain businesses, so if they encounter liquidity troubles, this may spin the financial system out of control, jeopardizing the financial sector's stability, she advised.  

If conducted steadily, financial deleveraging can help maintain the yuan's exchange rates at a stable level. "Deleveraging deflates bubbles on the bond market, pushes market rates upward, and narrows the interest spread between China and the US, thereby supporting a strong yuan."