Growth in China is eas­ing off

In­vest­ment at 18-year low

The Star Early Edition - - BUSINESS REPORT - Kevin Yao and Lusha Zhang

CHINA posted rare dis­ap­point­ing data yes­ter­day, in­clud­ing its slow­est growth in in­vest­ment in nearly 18 years – sug­gest­ing that 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 few months, but rather the next cou­ple of years,” said Cap­i­tal Eco­nomics’s 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 that 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 stronger-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 per­cent in Jan­uary-Au­gust from a year ear­lier, the weak­est pace since De­cem­ber 1999 and cool­ing from 8.3 per­cent in Jan­uary to 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 front loaded fis­cal spend­ing this year to pro­duce rosy growth ahead of the once-in-five-years Com­mu­nist Party Congress next month, Evans-Pritchard said.

But lo­cal govern­ments are con­strained by an­nual bud­gets and have had to pare back their spend­ing in the sec­ond half of this year, he added.

That likely had a knock-on ef­fect on in­dus­trial out­put, which rose 6 per­cent in Au­gust year-on-year, the weak­est pace in nine months, statis­tics bureau data showed. An­a­lysts had pre­dicted out­put would grow 6.6 per­cent in Au­gust, up from 6.4 per­cent in July.

Hot and Wet

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 half a per­cent.

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.

But econ­o­mists at No­mura main­tained their view that the economy would ex­pand 6.8 per­cent in the third quar­ter from a year ear­lier, eas­ing only slightly from 6.9 per­cent in the first half. That would keep China on track to eas­ily beat the gov­ern­ment’s full-year growth tar­get of around 6.5 per­cent, even if there is some fur­ther soft­en­ing late in the year.

Over­all in­vest­ment may have soft­ened fur­ther if not for an un­ex­pected re­bound in the prop­erty mar­ket, which di­rectly af­fects 40 other busi­ness sec­tors in China.

De­spite a se­ries of gov­ern­ment curbs which have largely suc­ceeded in cool­ing red-hot hous­ing prices, ac­tiv­ity in the prop­erty mar­ket snapped back in Au­gust, pos­si­bly as de­vel­op­ers turn their fo­cus to smaller cities with fewer re­stric­tions.

Prop­erty in­vest­ment, which mainly fo­cuses on res­i­den­tial real es­tate, but also in­cludes com­mer­cial and of­fice space, grew 7.8 per­cent in Au­gust year-on-year, ver­sus 4.8 per­cent in July, ac­cord­ing to cal­cu­la­tions from yes­ter­day’s data.


A man walks in a park near Bei­jing’s cen­tral busi­ness dis­trict. Data re­leased yes­ter­day showed that fac­tory pro­duc­tion and re­tail trade posted weaker than ex­pected re­sults, as con­sumers also faced higher bor­row­ing costs.

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