Traders took their cash off the table after China said industrial output expanded at its slowest pace in three months in November. Photo: Reuters.
Traders took their cash off the table after China said industrial output expanded at its slowest pace in three months in November. Photo: Reuters.

China’s industrial output growth hits 6-year low

By Bloomberg Time of article published Sep 15, 2014

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Beijing - China’s industrial output rose last month at the weakest pace since the global financial crisis and fixed-asset investment growth trailed projections, adding to evidence that the second-biggest economy is losing momentum.

Factory output rose 6.9 percent from a year earlier in August, the National Bureau of Statistics said on Friday, compared with 9 percent in July and the 8.8 percent median estimate in a survey.

Retail sales gained 11.9 percent and fixed-asset investment in the January to August period increased 16.5 percent year on year.

The data signal that the impact of China’s property slump on the economy is deepening, with the decline in home sales accelerating last month and electricity output falling for the first time since 2009.

The slowdown will test Premier Li Keqiang’s reluctance to spur growth with monetary stimulus, as risks multiply to his expansion goal.

“Li should be worried if he’s serious about meeting his 7.5 percent target,” said Liu Li-Gang, the chief greater China economist at Australia & New Zealand Banking Group (ANZ) in Hong Kong.

“For the sake of his credibility, he may want to use further policy levers to achieve his target,” such as lowering reserve requirements for the country’s largest banks, Liu said.

State-owned commercial lenders were the main source of funding for China’s industrial sector, Liu said.

“If they don’t extend more credit it’s difficult to see any reacceleration in growth for the rest of the year.”

ANZ estimates the year-on-year increase in gross domestic product may slip to between 6.5 percent and 7 percent in the third quarter if this month’s data are also weak.

Second-quarter growth was 7.5 percent.

China’s benchmark stock index rose 0.9 percent on Friday, resulting in a second weekly gain, as lower-than-estimated credit data spurred speculation the government will ease policies to support growth.

The yuan declined 0.08 percent, paring its weekly advance to about 0.1 percent.

Industrial output growth was below all 51 estimates in a Bloomberg survey, with projections ranging from 8.5 percent to 10 percent.

It was the slowest pace outside of the Lunar New Year holidays of January and February since December 2008, based on previous figures.

Growth in retail sales compared with the 12.1 percent median projection of analysts.

The median estimate for expansion in January to August fixed-asset investment excluding rural households was 16.9 percent, after a 17 percent gain in the first seven months.

“This is really bad,” said Kevin Lai, a senior economist with Daiwa Capital Markets in Hong Kong.

“The economy continues to slow down despite the fact that there has been some policy easing, and the data confirm what import growth has been telling us.”

Imports fell for a second month in August and manufacturing expansion slowed, figures showed earlier this month.

Residential building sales by floor space fell 10 percent in the eight months to August from a year earlier, the statistics bureau said, after a 9.4 percent drop in the first seven months.

Vehicle output rose 3.1 percent last month from a year earlier, the statistics bureau said, the weakest figure since a drop in December 2011.

In a speech at the World Economic Forum in Tianjin on Wednesday, the premier said the government would not be distracted by short-term fluctuations in individual indicators and would maintain its focus on structural adjustments and dealing with long-term issues.

Growth slightly higher or lower than the 7.5 percent target was acceptable as long as employment, incomes and environmental protection improved, he said. - Bloomberg

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