China’s economy runs out of steam
Growth is at its weakest pace in 24 years
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