More evidence of China slowdown in July data

A woman walks out of a supermarket with a sack of vegetables in Beijing on Aug 9.
A woman walks out of a supermarket with a sack of vegetables in Beijing on Aug 9.PHOTO: AFP

BEIJING (REUTERS) - China's economic activity slowed in July, with investment growing at its slowest pace in more than 16 years in the year-to period, as the world's second-largest economy grappled with the painful restructuring of its older industrial sectors.

The pace of fixed-asset investment slipped to 8.1 per cent in January-July from 9 per cent in the January-June period. Analysts had expected it to rise 8.8 per cent.

This is the third consecutive month of growth below 10 per cent and the weakest year-to-date growth since December 1999, suggesting the effects of a credit boom in the first quarter are fading.

"People are worried about a lack of solid demand over the next few years so they aren't really investing, especially in capex, which is the driving factor of the slowing investment," said Zhou Hao, Senior Emerging Markets Economist at Commerzbank in Singapore.

In other data releases on Friday (Aug 12), factory output rose 6.0 per cent in July from a year earlier, below the 6.1 per cent analysts had expected and consumption softened with retail sales growth easing to 10.2 per cent after a rise of 10.6 per cent the prior month.

While China's consumption remains strong, investment and net exports are slowing, with the government likely to boost headline growth through fiscal policies.

Trade data this week showed a further drop in exports and a higher-than-expected decline in imports, suggesting sluggish demand at home and abroad.

David Qu, markets economist at ANZ in Shanghai, said while weak industrial activity is a sign of poor economic health, China is unlikely to use monetary policy to restore growth.

"Although economic activity isn't very good, due to the need to continue to get rid of overcapacity, there's not a lot of room to ease," said Qu.

The fixed-asset investment retreat was led by a 22.9 per cent decline in mining, suggesting the government's goal of cutting production in older industrial sectors is working.

Real estate investment growth slowed to 5.3 per cent but remains elevated.

The decelerating growth rate comes amid fears the country is accumulating too much debt at the local level.

Growth in investment by state firms cooled to 21.8 per cent in Jan-July, from 23.5 percent in Jan-June.

Meanwhile, private investment grew 2.1 per cent, compared with 2.8 per cent in the first half, as investors remain wary about the growth outlook amid painful reforms in the state owned enterprise sector. Private investment accounts for about 60 per cent of overall investment in China.

Sheng Laiyun, a spokesman at the National Bureau of Statistics, said while companies from emerging sectors are willing to invest, some private firms still struggle to access financing.

"Most private companies have to rely on their own sources of funding," Sheng told reporters at a press conference after the data. "Despite efforts by the government, based on feedback from companies, they still face difficulties getting bank loans."