China’s economy slowed further in the first two months of 2019 as the growth of industrial production fell to its lowest rate in a decade. Industrial production growth slowed to 5.3 per cent in January and February compared to the same period last year, down from 5.7 per cent growth in December, according to data released on Thursday by the National Bureau of Statistics (NBS). The result was below the 5.6 per cent expected by analysts in a Bloomberg survey. The January and February output growth rate was the lowest since 5.1 per cent in March 2009. But of particular concern to the government will be the sharp rise in the surveyed unemployment rate to 5.3 per cent in January and February from 4.9 per cent in December. The rate in the first two months of the year is the highest since hitting 5.4 per cent in February 2017, a month after the survey was first collected. To smooth out the impact of the Lunar New Year holiday, which began on February 5 this year, 10 days earlier than last year, the NBS only released combined data for the first two months of the year. “The latest activity and spending data suggest that economic conditions remained weak at the start of 2019. The statistics bureau publishes combined data for the first two months of the year in order to iron out seasonal volatility caused by annual shifts in the timing of Chinese New Year,” said Julian Evans-Pritchard, senior China economist at Capital Economics. Retail sales rose 8.2 per cent in January and February compared to the same months in 2018, the same rate as in December. As in December, the January and February rate was the lowest since June 2003 and was in line with expectations in the Bloomberg survey. The stable growth rate may indicate subdued consumer spending at the start of the year as retail sales usually receive a boost during the Lunar New Year holiday, period, a traditional gift-giving period. “Today’s data means the economy will take a longer time to bottom out as industrial production and consumption are still under pressure despite the rebound in investment” and the worsening jobless rate indicates more easing policies to come as policymakers always put employment at the first place, said Liu Peiqian, Asia strategist at NatWest Markets PLC in Singapore. Fixed asset investment rose 6.1 per cent in the first two months of the year, accelerating modestly from the 5.9 per cent growth rate posted for all of 2018. The result was also in line with expectations. The rise in overall investment reflected a strong gain in the property sector, where investment jumped to 11.6 per cent in January and February from 9.5 per cent in December, reflecting in part a continued increase in government infrastructure investment. But the overall property sector remained weak, with property sales growth plunging to 2.8 per cent in the first two months of the year from 12.2 per cent in December. “At first glance, the bright spot in the data was fixed investment. This was driven by stronger property investment, which offset a slowdown in manufacturing and infrastructure investment,” added Evans-Pritchard. “However, the data on property investment are often distorted by land acquisition costs. And the more reliable data on real estate activity were more downbeat – property sales continued to contract and growth in floor space started dropped back sharply.” At first glance, the bright spot in the data was fixed investment. This was driven by stronger property investment, which offset a slowdown in manufacturing and infrastructure investment. Julian Evans-Pritchard, Capital Economics China’s economic growth has continued to slow at the start of 2019, due to the effects of the government’s deleveraging campaign to reduce debt and risky lending and the ongoing trade war with the United States. China overall growth rate dropped to 6.6 per cent last year, the slowest growth rate in 28 years. “Currently, there are many external imbalance and uncertainties. Especially, the global economic growth and international trade showed sign of slowing, while domestic structural issues remain, such as the fall of auto [sales],” said NBS spokesman Mao Shengyong. “The Chinese economy could stay healthy if counter-cyclical policies were fully in place.” The government acknowledged the slowdown last week by setting a growth target range of between 6.0 per cent to 6.5 per cent for this year, with the target range giving it leeway in the face of continued uncertainties about the domestic and global growth outlooks. The government has also enacted a series of fiscal stimulus measures – including tax cuts and additional funds for local government infrastructure spending – in an effort to stabilise growth. Currently, there are many external imbalance and uncertainties. Especially, the global economic growth and international trade showed sign of slowing, while domestic structural issues remain, such as the fall of auto [sales]. Mao Shengyong, NBS spokesman Zhang Jun, chief economist of Morgan Stanley Huaxin Securities in Shanghai, said the January and February data indicated consumption was still “pretty weak”, while two major parts of fixed asset investment – property and manufacturing investment – are constrained by rising stocks and the squeezed corporate profitability. “Infrastructure construction will recover, but can hardly prop up the country’s investment, especially under the slogan of stabilising the macro leverage,” he said. “More consumption boosting measures are needed this year.” However, the government is closely watching the lagged effects of previously announced measures, including cuts of the required reserve ratio for banks and personal income tax, and the impact of the recently announced corporate tax reduction, before considering next moves. “What the authority now tries to do is to make the decline mild and controllable,” Zhang added. A crucial factor to the economic outlook is whether the government will be able to resolve its trade dispute with the US. While officials have said that progress continues to be made toward a deal, US trade representative Robert Lighthizer told the US Congress this week that a number of important issues remain unresolved. “We expect Beijing to ramp up supportive policies in coming months and still believe deregulating the property markets in big cities is the key to unlocking a growth recovery,” said Nomura’s chief China economist Lu Ting. One of the moves, Lu added, would be a 50 basis point cut of required reserve ratio, the minimum amount of reserves that must be held by a commercial bank, by the People’s Bank of China as early as April. Additional reporting by Bloomberg