Markets sighed with relief at the gloomy economic data coming out of China yesterday. True, the purchasing managers’ index published by HSBC fell to 48.2 in June, a nine-month low. Yet, after last month’s cash crunch, in which interbank rates spiked to double-digit levels, investors had braced for even bleaker news. The stock market in Shanghai was unmoved, closing the day up 0.8 per cent.

China’s slowdown, however, is only going to get worse. The interbank lending market is functioning again thanks to the intervention of the People’s Bank of China. But the authorities are still determined to rein in credit, which has grown extremely fast so far this year. Indicators of companies’ borrowing costs are still higher than they were a month ago. Several analysts fear that China may miss its own gross domestic product growth target for 2013, which stands at 7.5 per cent.

Slower growth is a price worth paying to end China’s credit binge. A new monetary stimulus after the one in 2008-09 would offer temporary relief to the economy. But it would also lead to a new property boom. Local governments and, increasingly, retail investors are heavily exposed to the construction sector. Reinflating the bubble could have catastrophic outcomes.