Chinese economic figures fail to live up to expectations

Statistics suggest world’s second largest economy may be losing steam

PUBLISHED : Monday, 14 August, 2017, 12:28pm
UPDATED : Monday, 14 August, 2017, 12:28pm

China’s factory output slowed more than expected in July while investment and retail sales also disappointed, reinforcing concerns that the world’s second-largest economy was starting to lose some steam as lending costs rose and the property market cooled.

Factory output rose 6.4 per cent in July from a year earlier, the slowest pace since January this year, statistics bureau data showed on Monday.

Analysts polled by Reuters had predicted factory output would grow by 7.2 per cent in July, down from 7.6 per cent in the previous month.

Fixed-asset investment grew by 8.3 per cent in the first seven months of the year, cooling slightly from 8.6 per cent in the first half of the year. Analysts had expected the growth rate would remain steady.

Despite the softer-than-expected reading, China’s manufacturing activity still appeared to be supported by a year-long construction boom. Beijing has poured money into infrastructure projects that have fuelled demand for products from construction equipment to building materials from cement to steel.

Relatively resilient economic growth is no doubt welcome news for President Xi Jinping ahead a major political leadership reshuffle in autumn, with authorities keen to ensure a smooth run-up to the meeting.

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Any sharp drop in industrial activity, which appears to be a low risk at this stage, would be a concern for policymakers as it risks rippling across the broader economy.

However, China’s surprising strength so far this year seems unlikely to last. A government crackdown on riskier types of lending has driven a slowdown in credit growth and pushed up financing costs, which are expected to start weighing on the economy in coming months.

Average lending rates edged up to 5.67 per cent in June from 5.53 per cent in March, China’s central bank said on Friday in its second-quarter policy report, adding it will continue working to fend off risks to the financial system.

Concerns about the outlook for domestic demand resurfaced last week after Beijing reported weaker-than-expected import and export data.

Though some economists chalked up softer imports to seasonal or one-off factors such as bad weather, others said it may be a sign that China’s trade growth peaked in the second quarter and is now on a downward trend.

Retail sales rose 10.4 per cent in July from a year earlier, cooling from June’s 11 per cent pace and also failing to meet analysts’ expectations for a 10.8 per cent rise.

China has surprised most pundits all year, with the economy growing at a faster-than-expected rate of 6.9 per cent in the first half, turbo-charged by heavy government spending, a hot housing market and record bank lending last year.

Analysts still insist a modest slowdown will come eventually, but have repeatedly pushed back the timing in the face of resilient data.

China’s factory gate inflation remained steady in July, a positive sign for industrial output and profits. Its insatiable thirst for resources has led to higher prices for industrial commodities and a reflationary pulse for manufacturing that has been seen worldwide.

The steel industry continues to feast on fat profit margins, cranking out products despite concerns that stockpiles are growing at a pace that is far outstripping demand.

Beijing’s plans to shut more inefficient and heavily polluting mines and mills this winter have triggered a fresh spike in prices for iron ore and steel reinforcing bars.

China’s foreign exchange reserves rise to nine-month high of US$3.08 trillion

Growth of private investment slowed to 6.9 per cent in January-July from 7.2 per cent in the first half of the year, suggesting small and medium-sized private firms still face challenges in accessing financing.

Private investment accounts for about 60 per cent of overall investment in China.

China is targeting growth of around 9 per cent in fixed asset investment for 2017, and expects retail sales to increase about 10 per cent.