Poor figures for July strengthen fears that China’s economy still losing steam
Performance in areas such as retail sales and industrial output lower than market expected
China’s economy is quickly losing steam as private investment and home construction crumbles, official figures released on Friday showed.
Economists said the disappointing data could prompt the government to launch more measures to boost the economy,complicating the leadership’s efforts to balance growth and reform.
With credit stimulus losing its shine, a bad start for the economy in the second half also creates fresh challenges for decision-makers gathering at the resort of Beidaihe to discuss the country’s economic and political future.
“The downbeat investment figures raise questions over the efficacy of recent policy easing,” Capital Economics economist Julian Evans-Pritchard said in a note. “The impact of this step up in lending ... on investment has underwhelmed.”
Despite government attempts to revive capital spending by non-state players, private investment growth slowed to 2.1 per cent in the first seven months, the lowest level since the National Bureau of Statistics began releasing the data in 2012.
The reluctance of private investors to spend on plant and equipment, along with slowing property investment, dragged down the pace of overall investment to 8.1 per cent in the first seven months.
Louis Kuijs, head of Asia economics at Oxford Economics, said the mainland’s growth “will be under pressure from more subdued real estate construction and weak corporate investment”.
The government would have to rely on stimulus “if it wants to meet the GDP growth targets” of 6.5 per cent to 7 per cent this year, he said.
NBS spokesman Sheng Laiyun said floods and lacklustre market demand at home and abroad contributed to slower growth in July.
Sheng said China was still in the throes of restructuring its economy, which still faced much downward pressure.
Growth of M2 – a broad measure of money supply – slowed to 10.2 per cent in July, down from June’s 11.8 per cent, the central bank said. New loans amounted to 463.6 billion yuan (HK$541.7 billion), below June’s 1.38 trillion yuan and market expectations.
Bank of Communications researcher Chen Ji said the credit slump was partly due to private enterprises’ reluctance to invest. Banks also “front loaded” many loans to June to improve their interim performance, resulting in a tumble in July, Chen said.
Huarong Securities analyst Ma Zihui said the central bank’s hands were tied.
“The People’s Bank of China may be cautious to take immediate action to ease monetary policy further on concerns of an asset bubble,” Ma said. “The central bank may wait a little bit longer to monitor the August data to see if the hit from floods turned out to be short-lived.”
Economists at JPMorgan led by Zhu Haibin also said the July data pointed to the need for more policy support, “especially on the fiscal policy side”.