China's investment, factory output lower than expected

BEIJING • Growth in China's investment and factory output missed forecasts in August, pointing to a further cooling in the world's second-largest economy that will likely prompt the government to roll out more support measures.

The downbeat data came on the heels of weak trade and inflation readings, raising the chances that third-quarter economic growth may dip below 7 per cent for the first time since the global crisis.

Fears of a China-led global economic slowdown have roiled global markets in recent weeks, prompting speculation that the US central bank may hold off on raising interest rates later this week.

"The pace of slowdown in fixed-asset investment is relatively fast - dragged by the property sector, while the factory sector remains sluggish," said Mr Zhou Hao, senior economist at Commerzbank AG in Singapore. "Overall, the economy is very weak and the central bank may have to continue cutting interest rates and banks' reserve requirement," he said, adding that he expected growth to very likely dip below 7 per cent in the July-September quarter.

Some economists believe current growth is already much weaker than official data suggests. August power output, for example, was up just 1 per cent year-on-year, and production of key industrial commodities such as steel weakened.

Growth in China's fixed-asset investment, one of the crucial drivers of the economy, slowed to 10.9 per cent in the first eight months of 2015 - the weakest pace in nearly 15 years, data from the National Bureau of Statistics showed yesterday.

Analysts polled by Reuters had forecast an 11.1 per cent rise, compared with 11.2 per cent in January-July. Factory output also was weaker than expected, rising 6.1 per cent in August from a year earlier. Markets had expected a 6.4 per cent increase, compared with July's 6 per cent.

Annual growth in China's real estate investment also continued to cool, slowing to 3.5 per cent in the first eight months, the weakest since early 2009, from 4.3 per cent in January-July.

While home sales and prices are slowly recovering from a slump last year - the area of property sold rose at a slightly faster pace of 7.2 per cent in January-August - analysts said it will take time for developers to work off a huge overhang of unsold houses and a sharp falloff in new construction will continue to dampen demand for materials from cement to steel. Sales of earth excavators fell 33 per cent in August from a year earlier, hitting heavy machinery makers such as China's Sany and US heavyweight Caterpillar, Bank of America Merrill Lynch said in a recent note.

"The property sector is the biggest drag on China's economy," said Huatai Securities chief economist Yu Pingkang. "A pick-up in infrastructure investment is insufficient to offset the slowdown in property investment."

Mr Yu has pencilled in 6.9 per cent growth for the third quarter.

Retail sales were the lone positive surprise, growing 10.8 per cent in August from a year earlier, above forecasts of 10.5 per cent, the same as July. But the increase did not appear to jibe with recent reports from local and foreign firms in China of slowing sales.

Chinese e-commerce giant Alibaba Group, which dominates online sales in the country, lowered its sales forecasts last Tuesday in a fresh signal that the economic slowdown is taking a bite out of consumer spending.

Vehicle sales fell 3 per cent in August from a year earlier, the China Association of Automobile Manufacturers said.

Data last week showed that China's manufacturers slashed prices at the fastest rate in six years in August as commodity prices fell and demand cooled, signalling stubborn deflationary risks in the economy and adding to expectations of further stimulus measures.

Imports tumbled more than expected while exports shrank again, pointing to persistently weak demand both at home and abroad.

China's surprise yuan devaluation last month and a plunge in its stock markets since June have fuelled fears of more shocks to the economy, although Premier Li Keqiang has brushed off concerns it was facing a hard landing.

Most analysts agree the economy is likely facing a prolonged but gradual slowdown, rather than a sharp loss of momentum. China's central bank has cut interest rate five times since November and repeatedly relaxed banks' reserve requirements in a bid to put a floor beneath the sputtering economy.

Further policy easing is widely expected in coming months, and the government is also trying to boost investment in infrastructure projects to support growth. The government is aiming for annual economic growth of around 7 per cent this year, which would the slowest in half a quarter-century. REUTERS

A version of this article appeared in the print edition of The Straits Times on September 14, 2015, with the headline 'China's investment, factory output lower than expected'. Print Edition | Subscribe