China’s economy cools, but no worry

Crackdown on debt risks

CHINA’S economy cooled further last month, with industrial output, fixed asset investment and retail sales missing expectations as the government extended a crackdown on debt risks and factory pollution.

Beijing is in the second year of a campaign to reduce high levels of debt as authorities worry that riskier lending practices, especially in the real estate sector, could imperil the economy.

Data yesterday suggested policy makers are making progress in defusing financial risks by weaning China off its years-long addiction to cheap credit and signalled moderating growth over the next few quarters.

Industrial output rose 6.2 percent year-on-year in October, the National Bureau of Statistics (NBS) said, missing analysts’ estimates of a 6.3 percent gain and lagging a 6.6 percent increase in September.

Fixed-asset investment growth also slowed to 7.3 percent in the January-October period, from 7.5 percent in the first nine months. Analysts had expected an increase of 7.4 percent.

“The moderation in activity data released today suggests that growth slowed in October and adds to our conviction that it will continue to do so in the quarters ahead,” Nomura analysts wrote in a note to clients yesterday.

In the property sector, where authorities have tightened rules to flush out speculative financing that has helped drive a two-year boom, sales and new construction starts fell in October.

Property investment growth also cooled to 5.6 percent in October year-on-year, from 9.2 percent in September, calculated from NBS data out yesterday.

“I think this (slowdown in real estate) is exactly what the government is looking to do. I don’t see them changing their policy course,” said Jonas Short, who heads the Beijing office at investment bank Sun Hung Kai Financial.

Data on Monday showed China’s new loans fell more than expected last month to their lowest in a year as banks tightened mortgage lending.

Surprising strength

China’s economy has surprised financial markets with robust growth of nearly 6.9 percent in the first nine months of this year, underpinned by a recovery in its manufacturing and industrial sectors thanks to a government-led infrastructure spending spree, a resilient property market and strength in exports. That has supported the world economy as the Asian giant has continued to hoover up commodities and consumer goods, helping to stoke underlying global demand for cars and smartphones to TVs and industrial products.

The overall picture backs the view that the Chinese economy is entering a period of moderation rather than rapid deceleration.