China’s economy loses steam in August, but Beijing seems just fine with that
Downturn was an inevitable consequence of President Xi Jinping’s push for a cleaner environment
China’s economy lost momentum in August, with industrial output and retail sales both seeing slower growth, though the weaker figures are unlikely to have come as a surprise to Beijing as it continues to instigate the supply side reforms that are so central to President Xi Jinping’s vision.
The country’s drive to find cleaner and greener ways to grow has intensified since Xi told senior provincial officials in July that environmental protection would be a priority in the years ahead, right up there with poverty reduction and controlling financial risk.
However, thanks to the stronger-than-expected 6.9 per cent growth achieved in first half of 2017, the government was able to shut down unwanted and polluting industrial plants without damaging its full-year ambitions. It is now all but guaranteed to achieve its target of 6.5 per cent growth for the whole of 2017 even if the economy slows further in the coming months.
China’s industrial output in August rose 6 per cent from the same month of 2016, the National Bureau of Statistics said on Thursday. The figure was below analysts’ estimates of 6.6 per cent and the 6.4 per cent recorded in July.
“The effects of the supply-side reforms on industry are evident,” Wang Tao, chief China economist with UBS, said.
“Production restrictions and severe crackdowns on polluters have led to output declines from cement to non-ferrous metals,” she said.
Retail sales in August expanded 10.1 per cent from a year ago, their slowest monthly rate this year, while fixed-asset investment in urban areas rose 7.8 per cent in the first eight months of 2017, its slowest pace since 1999.
Despite the general downturn, Beijing has remained upbeat about the country’s growth prospects.
On Tuesday, Premier Li Keqiang said he was confident the country would maintain the strong economic growth it achieved in the first half of the year.
Speaking at a press briefing after a round-table meeting with the heads of six global agencies, including the World Bank, International Monetary Fund and the World Trade Organisation, Li said China’s economy was becoming healthier and more sustainable.
Liu Aihua, a spokeswoman for the statistics bureau, told a press conference on Thursday that China’s economic fundamentals remained sound despite the downturn in some economic indicators last month.
She said that energy-intensive manufacturing sectors reported the most significant slowdowns in August, which was to be expected.
“It showed that all regions and all sectors are intensifying their efforts to implement a new development concept ... of innovation and green growth,” she said.
For officials in many parts of the country the environment has now overtaken economic expansion as their top priority. Nowhere is that more the case than in Beijing, Tianjin and Hebei, where governments are doing all they can to ensure blue skies for the upcoming party congress. The event starts on October 18, when 2,300 delegates will gather in Beijing to “elect” the country’s new leadership for the next five years.
Haitong Securities suggested in a note that China’s all out effort to clean up its environment could mean only one thing for economic growth in the short term.
“Investment in the manufacturing sector will hardly pick up,” the note said. “The downside risk for China’s economic growth has ... increased for the remainder of this year.”
Wang said that as the country continued with its reforms, a slowdown was inevitable.
“Funding for local government financing vehicles will become harder to find and infrastructure investment will feel the brunt. We can expect further moderation in the economy in the third and fourth quarters.”
A noticeable appreciation of the yuan in 2017 has also weakened China’s export momentum, and the central bank stepped in last week to rein in the currency’s rise against the dollar.