China economy comes off the boil

Stimulus measures expected

CHINA’S economy is showing signs of cooling further as the US prepares even tougher trade tariffs, with investment growth slowing to a record low and consumers turning more cautious about spending, data showed yesterday.

Fixed-asset investment expanded by a less-than-expected 5.5 percent in January-July, a result of Beijing’s crackdown on lavish local government borrowing for projects to boost growth.

Industrial output also undershot expectations, weighed down by pollution curbs and the uncertain trade outlook, adding to expectations that authorities will roll out more policy stimulus measures.

With the trade war threatening more pressure on China’s already slowing economy, Beijing has shifted its focus to boosting domestic demand and is taking a more measured approach in its campaign to reduce financial risks and debt, which has pushed up borrowing costs and triggered a rising number of defaults.

“The latest batch of data is likely to prompt more policy support,” DBS of Singapore said in a report.

The government has pledged to ramp up spending on railways and roads – its traditional “go-to” approach when the economy slows – while the central bank is pumping more money into the system and urging banks to offer more loans at cheaper rates to small businesses.

New yuan loans exceeded expectations in July, statistics showed on Monday, in one of the few bright spots in the most recent data.

“Admittedly, infrastructure spending may soon bottom out given the recent shift toward a looser fiscal stance and monetary easing should eventually drive a turnaround in credit growth,” Julian Evans-Pritchard, senior China economist at Capital in a note.

“However, these are unlikely to put a floor beneath economic growth until the middle of next year.”

With the economy shifting into lower gear even without a trade shock, Capital Economics has predicted China’s central bank will soon cut its official lending rate for the first time since 2015, though most analysts predict a more modest but steady stream of support. The pace of fixed asset investment was the weakest on record going back to early 1996, according to data on Reuters Eikon. – Reuters