China Factory-Output Slump Tests Premier Li’s Resolve


China’s industrial output rose at the weakest pace since the global financial crisis and fixed-asset investment growth trailed projections, adding to evidence the world’s second-biggest economy is losing momentum.

Factory production rose 6.9 percent from a year earlier in August, the National Bureau of Statistics said today in Beijing, compared with 9 percent in July and the 8.8 percent median estimate in a Bloomberg News survey. Retail sales gained 11.9 percent and fixed-asset investment in the January-August period increased 16.5 percent.

The data signal the impact of China’s property slump on the economy is deepening, with the decline in home sales accelerating last month and electricity output falling for the first time since 2009. The slowdown will test Premier Li Keqiang’s reluctance to spur growth with monetary stimulus, as risks multiply to his 2014 expansion goal.

“Li should be worried if he’s serious about meeting his 7.5 percent target,” said Liu Li-Gang, chief Greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. “For the sake of his credibility, he may want to use further policy levers to achieve his target,” such as lowering reserve requirements for the country’s largest banks, Liu said.

State-owned commercial lenders are the main source of funding for China’s industrial sector, Liu said. “If they don’t extend more credit it’s difficult to see any reacceleration in growth for the rest of the year.” ANZ estimates the year-on-year increase in gross domestic product may slip to 6.5 percent to 7 percent in the third quarter if September data are also weak. Growth was 7.5 percent in the April-June period.

Ease Policies

China’s benchmark stock index rose 0.9 percent yesterday, resulting in a second weekly gain, as lower-than-estimated credit data spurred speculation the government will ease policies to support growth. The yuan declined 0.08 percent yesterday, paring its weekly advance to about 0.1 percent.

Industrial-output growth was below all 51 estimates in a Bloomberg survey, with projections ranging from 8.5 percent to 10 percent. It was the slowest single-month pace outside of the Lunar New Year holiday period of January and February since December 2008, based on previously reported figures compiled by Bloomberg.

Growth in retail sales compared with the 12.1 percent median projection of analysts surveyed by Bloomberg. The median estimate for expansion in January-August fixed-asset investment excluding rural households was 16.9 percent, after a 17 percent gain in the first seven months.

Home Prices

“This is really bad,” said Kevin Lai, senior economist with Daiwa Capital Markets in Hong Kong. “The economy continues to slow down despite the fact that there has been some policy easing, and the data confirm what import growth has been telling us.”

Imports fell for a second straight month in August and manufacturing expansion slowed, figures showed earlier this month. Data from SouFun Holdings Ltd., operator of an online real-estate portal, showed home prices fell for a fourth month in August, based on a survey of 100 cities.

Residential building sales by floor space fell 10 percent in January-to-August from a year earlier, the statistics bureau said today, after a 9.4 percent drop in the first seven months.

Crude steel output rose 1 percent in August from a year earlier, the slowest pace in almost two years, today’s data showed. Electricity output fell 2.2 percent, the first decline since May 2009 excluding January and February data, and compared with a 3.3 percent July gain. The NBS attributed the drop partly to lower temperatures compared with August 2013.

Property ‘Adjustment’

The statistics bureau, in an analysis of today’s figures, cited an unstable global economic recovery, sluggish domestic and foreign demand and the real-estate market “adjustment,” along with temporary forces such as weather. The property market affects consumer products, the bureau said, citing a slump in the growth of color-television output.

“Even though some of the economic indicators declined, momentum for stable growth still exists,” the agency said in a statement attributed to Guo Tongxin, whose title wasn’t given. At the same time, “there is still uncertainty in the economy and there is still a downward trend,” Guo said.

Vehicle output rose 3.1 percent in August from a year earlier, the statistics bureau said, the weakest figure since a drop in December 2011.

Data Fluctuations

In a speech at the World Economic Forum in the northern Chinese city of Tianjin on Sept. 10, Premier Li said the government won’t be distracted by short-term fluctuations in individual economic indicators and will maintain its focus on structural adjustments and dealing with long-term issues.

Growth slightly higher or lower than the 2014 target of 7.5 percent is acceptable as long as employment, incomes and environmental protection improve, he said.

“It looks like the government is not in any state of panic, judging by Li Keqiang’s speech in Tianjin,” Daiwa’s Lai said. The slowdown isn’t “creating a threat to employment and they also understand that the fight against corruption will inevitably have some impact on growth,” he said.

Zhu Min, deputy managing director of the International Monetary Fund, said today that China has serious overcapacity and shouldn’t return to an investment-led model. “Any rate between 7.0 percent and 7.5 percent is acceptable,” Zhu, a former deputy governor at the People’s Bank of China, said today at a forum in Beijing.

Source from : Bloomberg