China’s October economic activity continues to falter

Investment grows at weakest pace since 2000

CHINA’S factory output growth hit a seven-month low in October while investment expansion slipped to its weakest pace since 2000, signs that further government policy support may be needed to shore up slowing demand in the world’s second-biggest economy.

The one bright spot in tepid October data released yesterday was an improvement in retail sales, which appear to be keeping the growth rate of the world’s second-largest economy from sliding.

Policy easing

Chinese leaders have embarked on the most aggressive policy easing since the 2008/09 global financial crisis, but the October numbers highlight persistent headwinds from weak global demand, a cooling domestic property sector and excess factory capacity.

“Fiscal policy is likely to become more expansionary next year,” Lin Hu, an economist at Guosen Securities in Beijing, said. “There will be more interest rate and RRR (reserve requirement ratio) cuts and we cannot rule out the possibility of such cuts within the year.“

Factory output grew slowerthan-expected at an annual 5.6 percent in October, the weakest in seven months, National Bureau of Statistics data showed. That was below a Reuters forecast of 5.8 percent and down on September’s 5.7 percent.

Fixed asset investment rose 10.2 percent in the first 10 months, in line with expectations but the weakest pace since 2000 and easing from a 10.3 percent gain in the January to September period.

The cooling real estate sector remained a drag on investment, with property investment growth slowing to 2 percent in the January to October period from 2.6 percent in the first nine months.

Retail sales growth continued to pick up, expanding at an annual 11 percent in October, compared with 10.9 percent in September. Analysts had forecast 10.9 percent growth in October.

Vehicle sales

Helping lift retail sales were buoyant vehicle purchases, which rose 11.8 percent from a year earlier in October, the biggest on-year gain since December, according to the China Association of Automo- bile Manufacturers.

Last week, General Motors said China vehicle sales rose 15 percent to a record high in October. And yesterday, e-commerce giant Alibaba reported sales from the Singles’ Day online shopping extravaganza had surpassed last year’s total of $9.3 billion (R132.9bn), a sign consumer sentiment remains firm in the fourth quarter.

Most analysts put more weight on indicators showing persistent problems than on green-shoots.

Zhou Hao, the senior emerging markets economist at Commerzbank in Singapore, said the data was not encouraging, despite some stabilisationz.

“Property investment remained low, which has failed to turn around the momentum of overall investment,” Zhou said. “While consumption outperformed… the overall growth profile still remains weak.”

Yesterday’s patchy activity data came on the heels of muted inflation and disappointing trade figures.