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China's growth slows in July but sharp downturn unlikely

A shopping mall in Shanghai beckons with top-of-the-line togs. Retail sales in China slowed slightly to 10.4 per cent last month, compared to 11 per cent in June.


CHINA posted slower-than-expected factory output and retail sales growth in July as government efforts to deleverage and rein in the property market since the beginning of the year gradually fed into the real economy.

Output by Chinese factories and workshops grew 6.4 per cent in July, down from 7.6 per cent in June.

Retail sales growth, meanwhile, slowed to 10.4 per cent from 11 per cent in June, while fixed-asset investment posted 8.3 per cent growth in the January-July period.

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Monday's data comes on the heels of slower trade growth in July with softer foreign and domestic demand impacting overseas shipments and imports. Other key indicators such as new construction projects measured by floor area, contracted for the first time since last September, falling 7 per cent in July.

"In general, the national economy was generally steady in July with continued positive momentum and deepening structural reform," National Statistics Bureau spokesman Mao Shengyong said at a news conference.

"But we also see that the international circumstance is still complicated and fluid, domestic structural conflicts still stand out, and there are still a lot of hidden concerns."

He said that growth could contract by 0.2 percentage point in the next quarters.

Until last month, China's economy had held steady despite monetary tightening by the central bank and a clampdown on cheap credit and bad debt, defying analysts' expectations.

Indeed, China's economy grew a solid 6.9 per cent in the second quarter on the back of a resilient construction sector boosted both by private investment and government support.

Yesterday's data shows that the economy may have peaked, but analysts don't expect a sudden slowdown. The Communist Party is holding a major meeting in the fall which will see President Xi Jinping consolidate his power and appointing key people. Ahead of the meeting, stability has been the key word with the government keen to avoid any social unrest.

Strategic sectors such as steel continued to grow by double digits with output rising to a monthly record in July. Power generation, another key indicator, was the highest since at least May 2014.

Looking ahead, economists expect China's economy to remain well within the government's target of about 6.5 per cent growth, all the while gradually bottoming out in the next few months as tightening continues.

"The activity and spending data for July all came in below expectations, reversing most of improvement seen at the end of Q2," said economist Julian Evans-Pritchard of Capital Economics. "A few sectors, such as steel, seem to have defied this slowdown. But the strength in these areas likely won't last given that policy tightening is set to further weigh on infrastructure and property investment in coming quarters."

In a five-yearly financial meeting held last month, the government reiterated its goals of hedging financial risks and creating a healthy financial industry. "We believe that Chinese policymakers will continue to curb financial risks as well as reduce the economy's reliance on easy credit which suggest that monetary policy will become tighter over the coming quarters," said Chua Han Teng, head of Asia country risk with BMI Research.

Average lending rates edged up to 5.67 per cent in June from 5.53 per cent in March, China's central bank said last week.

Nomura analysts said in a note after the release of the data on Monday that it is maintaining its view of a gradual slowdown for the rest of 2017 due to the cooling property market and escalating US-China trade tensions.

Tensions between the world's two biggest economies edged up a notch over the weekend with the Trump administration ordering a probe into China's intellectual property rules which could lead to sanctions.