You are here
China stability falters as factory output, investment slow
[BEIJING[ China's recent economic stabilisation faltered in July as factory output, retail sales and investment all slowed.
Industrial production rose 6 per cent from a year earlier in July, the National Bureau of Statistics said Friday. Retail sales climbed 10.2 per cent last month, while fixed-asset investment increased 8.1 per cent in the first seven months of the year.
All three readings missed economists estimates. Bloomberg's monthly gross domestic product tracker slipped to 6.94 per cent in July, from 7.13 per cent a month earlier.
The slowdown sharpens the dilemma facing the nation's policy makers - boost growth with cheap credit that risks undermining financial stability, or curb debt expansion even if that slows the economy.
With tepid global demand giving no boost and businesses at home reluctant to invest, the government has increased fiscal support this year, even as it held off from further benchmark interest-rate reductions.
"The big concern is still sluggish investment," said Zhou Hao, a Singapore-based senior economist at Commerzbank AG.
"The central bank will maintain an easing bias to support the real economy, and a cut in rates or the required reserve ratio this year cannot be entirely ruled out."
There was brighter news in real estate. Property development investment in the first seven months of the year rose 5.3 per cent, while the value of property sales during the period soared 39.8 per cent, NBS said. Home sales value rose 41.2 per cent while new property construction increased 13.7 per cent.
By industry, textiles and steel output remain sluggish, while car manufacturing was the outperformer with a 22.9 per cent increase from a year earlier, the production data showed.
"The traditional manufacturing sector is likely to continue to face strong headwinds as efforts to reduce overcapacity continue," economists at Australia & New Zealand Banking Group Ltd wrote in a recent note.
"We expect the authorities to maintain an accommodative monetary policy. However, as deleveraging remains a policy priority, we believe fiscal policy will take the lead in boosting growth."
Flooding has weighed on economic growth more than expected, while severe heat and weak foreign and domestic demand also contributed to the slowdown, an NBS official said at a briefing Friday.
China's worst floods since 1998 will shave as much as 0.2 percentage points from this quarter's expansion, according to almost half of economists in a Bloomberg survey last month.
The retail report showed food, drink and tobacco spending slowed.
The NBS data also showed oil refineries slowed processing activity in July from a record as fuel-making units shut for seasonal maintenance.
Reports earlier this week showed exports remained sluggish last month, signaling tepid global demand, while deteriorating imports raise concern domestic conditions may be weakening.
Meantime, inflation remains well below the government's target, giving room for monetary stimulus.
"Earlier stimulus policies will help the economy hold up in the third quarter before fading away at the year end," said Harrison Hu, Singapore-based chief greater China economist at Royal Bank of Scotland Group Plc.