China’s econ­omy runs out of steam

Growth is at its weak­est pace in 24 years

The Star Early Edition - - INTERNATIONAL - Xiaoyi Shao and Kevin Yao

7.7% in­dus­trial growth ver­sus 7.1 per­cent eco­nomic growth

CHINA’S econ­omy lost fur­ther mo­men­tum in Oc­to­ber, with fac­tory growth dip­ping and in­vest­ment growth hit­ting a near 13-year low, test­ing the gov­ern­ment's re­solve to avoid stronger stim­u­lus mea­sures.

The soft per­for­mance ce­mented the view that China is on track to grow at its weak­est pace in 24 years. But lead­ers re­main re­luc­tant to use full­blown pol­icy eas­ing, such as cut­ting in­ter­est rates.

Fixed-as­set in­vest­ment, an im­por­tant driver of growth, grew 15.9 per­cent in the first 10 months of the year from a year ago, the Na­tional Bureau of Statis­tics said yes­ter­day. That was the weak­est pace since De­cem­ber 2001.

Oc­to­ber fac­tory out­put rose 7.7 per­cent, which was higher that Au­gust’s 6.9 per­cent, but be­low forecasts and the sec­ond weak­est pace since the height of the global fi­nan­cial cri­sis.

Novem­ber’s read­ing could be weaker still, as many fac­to­ries in north­ern China shut early in the month to re­duce air pol­lu­tion as Asia-Pa­cific lead­ers met in Beijing.

“All three ac­tiv­ity in­di­ca­tors weak­ened mod­er­ately, sug­gest­ing the down­ward trend in gross do­mes­tic prod­uct (GDP) growth has not been ar­rested yet. I would ex­pect growth to be lower in the fourth quar­ter than in the third quar­ter,” said Shuang Ding, an economist at Citi in Hong Kong.

He said in­dus­trial pro­duc­tion of 7.7 per­cent roughly cor­re­sponded to eco­nomic growth of 7.1 per­cent. De­spite a raft of stim­u­lus mea­sures, China’s growth slowed to 7.3 per­cent in the third quar­ter. Oc­to­ber re­tail sales growth eased to 11.5 per­cent, the slow­est pace since early 2006.

The anti-cor­rup­tion drive spear­headed by Pres­i­dent Xi Jin­ping has hit sales of lux­ury goods and ex­pen­sive din­ing and also cooled down a craze among lo­cal gov­ern­ments to launch new in­vest­ment projects. Econ­o­mists polled had fore­cast re­tail sales and in­dus­trial out­put to rise 11.6 per­cent and 8 per­cent, while fixed as­set in­vest­ment was seen up 15.9 per­cent.

Other data this week showed in­fla­tion re­mained near a five-year low, high­light­ing slug­gish do­mes­tic de­mand, but leav­ing room for more pol­icy support mea­sures.

“The eas­ing bias re­mains. The Peo­ple’s Bank of China may roll over the MLF (medium-term lend­ing fa­cil­ity) in com­ing months to en­sure a sta­ble sup­ply of money, but I don’t think there will be a big stim­u­lus,” said Zhou Hao at ANZ in Shang­hai.

An­a­lysts be­lieve more support may be needed to off­set the drag from the cool­ing hous­ing mar­ket, but are di­vided over whether Beijing will take more force­ful ac­tion such as cut­ting in­ter­est rates un­less there is a risk of a sharper slow­down.

A mas­sive stim­u­lus pro­gramme dur­ing the global fi­nan­cial cri­sis left a legacy of in­fla­tion­ary pres­sures and heavy debt. Growth in real es­tate in­vest­ment, which af­fects about 40 other in­dus­tries in China, cooled to 12.4 per­cent in the first 10 months of 2014 from a year ear­lier.

New con­struc­tion con­tin­ued to fall, but a slump in prop­erty sales show­ing signs of eas­ing as banks quick­ened mort­gage ap­provals and of­fered bet­ter rates to some buy­ers. Still, an­a­lysts doubted whether gov­ern­ment moves in Septem­ber to lower mort­gage rates would stem the slide as a glut of un­sold units hangs over the mar­ket.

The cen­tral bank, which pumped 769.5 bil­lion yuan (R1.4 tril­lion) worth of three­month loans into banks in Septem­ber and Oc­to­ber, has pledged to keep its pol­icy stance ac­com­moda­tive, but stressed it will not flood mar­kets with cash. – Reuters

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