Falling prices in July can certainly bring credit to Chinese officials' insistence on a moderately loose monetary policy and proactive fiscal stance. But the latest slump in new loans, a seemingly sign of credit tighting, demands a compelling explanation from policymakers about how firmly they will stick to the moderately loose monetary policy needed to boost economic growth.

Data released by the National Bureau of Statistics yesterday showed that China's consumer price index fell 1.8 percent in July from a year earlier. The fact that the country's consumer inflation has remained negative for six months and just reached the lowest level in almost a decade provides policymakers with the much-needed space to keep a loose monetary condition.

Soaring prices in the property and stock markets have recently aroused public suspicion that the government might have to rein in credit expansion to prevent a rapid return of high inflation. Yet, in view of the still sluggish global growth and lackadaisical private investment at home, Chinese policymakers decided that it is necessary to keep stoking growth with fiscal and monetary support. Meanwhile, they assured the public that they would keep a keen eye on inflationary pressures.