BEIJING • Growth in China's factory output, investment and retail sales were all weaker than expected in July, adding pressure on Beijing to roll out more measures to prevent a deeper slowdown even as it takes steps to devalue its currency.
While the central bank yesterday said it would not let the currency slide too far, the devaluation came after data showed a hefty drop in exports and producer prices, which clearly weighed on Chinese manufacturers last month.
Critics say the yuan move is a shift back to old methods of propping up growth as new drivers fail to offset slowing investment.
"New growth drivers are not kicking in quickly enough to offset the slowdown in investment and real estate," said Mr Andrew Polk, a Beijing-based economist at the Conference Board. "China's economic managers seem to be taking one step forward, then two backwards."
The currency slid in the biggest rout since 1994, with losses deepening yesterday after output, investment and retail reports all trailed economists' forecasts.
Factory output rose 6.0 per cent in July from a year earlier, hitting a three-month low, and not meeting economists expectations of a 6.6 per cent rise. Fixed-asset investment also disappointed, rising 11.2 per cent in the first seven months compared with the year-ago period, the weakest pace in nearly 15 years, data from the National Bureau of Statistics shows.
Markets had expected an 11.5 per cent rise, which would have been a slight improvement from June and put the outlook for the second-half of the year on a somewhat more solid footing.
Retail sales rose 10.5 per cent in July from the same time last year, slightly below forecasts for 10.6 per cent growth, which would have been even with June's reading. Vehicle sales fell 7.1 per cent even as carmakers slashed prices and offered sweeter incentives.
The sluggish activity figures followed disappointing trade and inflation readings earlier this month that showed persistent weakness in the economy despite repeated stimulus measures by the central bank, which cut interest rates and reserve requirement of banks to boost credit and lower borrowing costs. Further policy easing is widely expected to avert a sharper slowdown.
Premier Li Keqiang, seeking to rebalance the economy away from a reliance on investment towards greater consumption, faces a potential miss of his 7 per cent expansion target for this year. Resorting to a currency devaluation and credit- fuelled growth adds to anxieties that China's debt and over-capacity problems will only worsen.
"The current policy is designed to secure a soft landing rather than a return to high-speed growth," said Mr Zhao Yang, chief China economist at Nomura Holdings in Hong Kong. "It's different from previous stimulus measures and consistent with goals to restructure the economy."
Critics said it was a shift back to old methods of propping up growth. "There is no economic rationale for what they are doing," said University of California's Professor Victor Shih, who studies China's politics and finance.
"It is just the planned economy's obsession with reaching targets rearing its ugly head again. Past experience tells us that such obsession often comes with high long- term costs."
There may be knock-on effects: The devaluation is likely to spur capital outflows, according to an estimate by Bloomberg Intelligence chief Asia economist Tom Orlik in Beijing.
REUTERS, BLOOMBERG
