China’s econ­omy los­ing some steam

In­vest­ment growth hits 18-year low

The Star Malaysia - StarBiz - - Foreign News -

BEI­JING: China has posted a rare flurry of dis­ap­point­ing data – in­clud­ing its slow­est growth in in­vest­ment in nearly 18 years -– sug­gest­ing the world’s sec­ond-largest econ­omy is fi­nally start­ing to lose some mo­men­tum as bor­row­ing costs rise.

Fac­tory out­put and re­tail sales also grew less than an­tic­i­pated, though a re­bound in prop­erty sales and con­struc­tion starts is likely to keep China’s over­all growth rel­a­tively ro­bust and com­fort­ably on tar­get ahead of a key lead­er­ship reshuf­fle next month.

“I think the risk (for China) isn’t in the next cou­ple of months but rather the next cou­ple of years,” said Cap­i­tal Eco­nom­ics’ Ju­lian Evans-Pritchard.

“Progress on key struc­tural re­forms that re­ally mat­ter, such as boost­ing the per­for­mance of state-owned en­ter­prises, has been quite slow and the struc­tural drags on growth re­main quite strong and are real risks.”

An­a­lysts had widely ex­pected China’s Au­gust data to show in­dus­trial out­put and re­tail sales growth had ac­cel­er­ated af­ter fad­ing slightly in July, while in­vest­ment was seen as only marginally softer.

That would have fit into a pat­tern of strong- er-than-ex­pected read­ings from China in the first half of the year and up­beat sur­veys on Au­gust fac­tory ac­tiv­ity.

A year-long, gov­ern­ment-led con­struc­tion boom has lifted de­mand and prices for ev­ery­thing from ce­ment to steel to glass, help­ing off­set an ex­pected drag from prop­erty cool­ing mea­sures and a reg­u­la­tory crack­down on riskier types of fi­nanc­ing.

But Au­gust’s data sug­gested the strong boost from Bei­jing’s in­fra­struc­ture build­ing spree may be start­ing to fade.

Fixed-as­set in­vest­ment, a key growth driver for the world’s sec­ond-largest econ­omy, grew 7.8% in Jan­uary-Au­gust from a year ear­lier, the weak­est pace since De­cem­ber 1999 and cool­ing from 8.3% in Jan­uary-July.

The main drag ap­peared to be a slow­down in in­fra­struc­ture in­vest­ment due to a sig­nif­i­cant drop-off in gov­ern­ment fis­cal spend­ing over the past two months, an­a­lysts said.

China front­loaded fis­cal spend­ing this year to pro­duce rosy growth ahead of the once-in­five-years Com­mu­nist Party Congress next month, Evans-Pritchard said. But lo­cal gov­ern­ments are con­strained by an­nual bud­gets and have had to pare back spend­ing in the sec­ond half of this year, he added.

That likely had a knock-on ef­fect on in­dus­trial out­put, which rose 6% in Au­gust on-year, the weak­est pace in nine months, sta­tis­tics bureau data showed.

An­a­lysts polled by Reuters had pre­dicted out­put would grow 6.6% in Au­gust, up from 6.4% in July.

The sta­tis­tics bureau said un­usu­ally hot and wet weather weighed on in­dus­trial out­put last month, adding that the econ­omy re­mained on a steady, im­prov­ing trend.

On a monthly ba­sis, out­put rose nearly 0.5%.

China’s crack­down on pol­lu­tion may have also dented in­dus­trial out­put, as Bei­jing looks to close older, smog-belch­ing mines and fac­to­ries, said Nie Wen, an econ­o­mist at Hwabao Trust in Shang­hai.

Still, econ­o­mists at No­mura main­tained their view that the econ­omy would ex­pand 6.8% in the third quar­ter from a year ear­lier, eas­ing only slightly from 6.9% in the first half.

That would keep China on track to eas­ily beat the gov­ern­ment’s full-year growth tar­get of around 6.5 %, even if there is some fur­ther soft­en­ing late in the year.

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