China’s strong economic growth easing
Borrowing costs up, while property market is showing signs of fatigue
CHINA’S strong economic growth showed visible signs of fading last month as lending costs rose and the gravity-defying property market cooled, though activity levels generally remained solid, propped up by a year-long construction spree.
Industrial output, investment, retail sales and trade all grew less than expected last month, after the world’s second-largest economy put in a surprisingly strong showing in the first half, adding fuel to a global recovery.
But economists do not expect any hard landing, with the government keen to ensure stability ahead of a once-in-fiveyears Communist Party leadership reshuffle in the autumn.
“The upshot is that both foreign and domestic demand appear to have softened at the start of the third quarter,” Julian Evans-Pritchard, China economist at Capital Economics, said.
“A few sectors, such as steel, seem to have defied this slowdown in economic activity.
“But the strength in these areas probably won’t last, given that policy tightening is set to further weigh on infrastructure and property investment in the coming months.”
Factory output rose 6.4 percent last month, from a year earlier, the slowest pace since January, according to data from the National Bureau of Statistics yesterday.
Output Analysts polled had predicted that output would grow by 7.2 percent – down from a better-than-expected 7.6 percent in June.
Despite the softer-than-expected reading, manufacturing activity still appears to be supported for now by an extended infrastructure boom.
Beijing has been pouring money into road and rail projects that have fuelled demand for products – from construction equipment to glass and steel.
China’s steel output rose to a monthly record last month, while power generation was the highest since at least May, 2014.
Any sharp drop in industrial activity, which appears to be unlikely at this stage, would be a concern for policy-makers, as it risks rippling across the broader economy.
In a sign that economic momentum could slow further, fixed-asset investment grew by 8.3 percent in the first seven months of the year, cooling from 8.6 percent in the first half of the year.
Analysts had expected the pace to remain steady.
Property investment, in particular, showed signs of fatigue after local governments were forced into repeated rounds of cooling measures to curb soaring home prices.
Growth in property investment, which mainly focuses on residential real estate, but includes commercial and office space, eased to 4.8 percent last month from a year earlier, versus 7.9 percent in June, calculations based on official data showed.
New construction starts measured by floor area, a telling indicator of developers’ confidence, contracted for the first time since last September, falling 7 percent in July yearon-year.
The statistic bureau said the overheated property market has cooled “somewhat”, but it still expected China’s economic performance to be steady in the second half.
The performance in July was stable, the bureau said.
Growth of private investment also ebbed to 6.9 percent in the first seven months of the year, suggesting small and medium-sized firms still face challenges in accessing financing.
Double-digits Private investment accounts form about 60 percent of overall investment in China.
Retail sales pulled back, too, but growth remained in the double-digits for the fifth month in a row, suggesting consumption will continue to overtake factory output and investment as the biggest growth driver of the economy, a key policy goal for Beijing.
Retail sales expanded 10.4 percent in July year-onyear, down from June’s 11 percent and forecasts for a 10.8 percent rise. But while car sales remained solid, car-makers cut back on production.
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 might be a sign that China’s trade growth peaked in the second quarter and is now on a downwards trend.
Beijing is targeting growth of around 9 percent in fixedasset investment for 2017 and expects retail sales to increase by about 10 percent.
“Combined with the previously released data on trade, demand and production visibly slowed in July,” Li Qilin, an analyst with Minsheng Securities, said.
“As for the property market, it will continue to face downwards pressure as projects are completed, with September and November the key months to watch.”