Output slows as manufacturers cut inventories

Growth in China's industrial output slowed sharply last month, with many factories shutting down as much as three quarters of their production capacity to reduce inventories, according to the official figures and economists.

Output rose 10.3 per cent year-on-year in January to 150 billion yuan (about HK$139.95 billion), down from a rise of 15.7 per cent in the final quarter of last year, the State Statistical Bureau said.

January's sharp mark down was partly due to many workers starting their Lunar New Year holidays, Charles Li, regional chief economist at NatWest Markets, said.

The slowdown might have been the result of the rising inventories of industrial goods, particularly durable consumer goods, Tao Dong , a senior China economist at Schroders Securities, said.

The sales-to-output ratio for January was 92.35 per cent, up 0.53 percentage point from a year ago, but 3.51 points down from the 1996 full-year figure.

Another set of official figures, published in the Economic Daily newspaper, revealed that manufacturers of 28 industrial and consumer goods, ranging from power generation equipment to edible oil, had utilised less than half their production capacity.

Mr Tao said he expected to see significant rationalisation in consumer goods sectors, such as microwaves, as price cutting and keen competition squeeze out smaller producers and prompt takeovers.

In January, figures showed the debt-laden state sector managed a year-on-year growth of 6.8 per cent to 90.8 billion yuan, little changed from the previous year's annual rate.

Private enterprises and joint ventures shone with 16.5 per cent production growth, up 3.4 percentage points on last year's annual rate.

Output growth among collectively owned enterprises - the star of the economy last year with an average rate of 17.7 per cent - eased to 9.5 per cent, the bureau said.