PEKING (Reuters) – China's economy stumbled more-than-expected in July, with industrial production growth plummeting to more than 17-years low as the worsening US trade war hit businesses and consumers harder.
FILE PHOTO: Trucks are transporting containers in a port in Qingdao, Shandong Province, China, July 11, 2019. REUTERS / STRINGER
China's activities have continued to cool and raise questions over the past year despite numerous growth moves Think about whether faster and more vigorous incentives may be needed, even if there is a risk of more debt.
After showing signs of improvement in June, analysts said recent data provided evidence of a general decline in demand over the past month, from industrial production to investment and retail sales.
Following weaker-than-expected bank lending and bleak factory issues in recent days, and the return of deflation in producer prices, further policy support measures are needed in the near future to heighten expectations.
"China's economy needs more incentives as the headwind is quite strong and today's data is much weaker than the consensus," said Larry Hu, director of Greater China economic department at Macquarie Group in Hong Kong.
"The economy will continue to slow down. At a certain point, policy makers need to increase incentives to support infrastructure and property. I think it could happen by the end of this year.
Industrial production growth slowed significantly to 4.8% yoy in July, according to National Bureau of Statistics data, which was below the most bearish forecast in a Reuters poll and the weakest pace since February 2002.
Analysts had predicted that it would slow to 5.8% from 6.3% in June. Washington sharply raised some duties in May.
Infrastructure investments, which Beijing has been stabilizing for the economy, declined as well as real estate investments, which were a rare ray of hope despite concerns about possible real estate bubbles.
Crude steel production declined for a second month in a row, while motor vehicle production continued to decline at double-digit rates. Hi-tech production increased at a slower rate of 6.6% and national electricity production only increased by 0.6%.
The Ministry of Industry said last month that China would need "tedious efforts" to reach its 2019 industrial growth target of 5.5% to 6.0%.
INVESTMENTS, RETAIL SALE COOL GROWTH
China's economic growth slowed to an almost 30-year low of 6.2% in the second quarter, and corporate confidence remains shaky and burdens investment.
While officials have warned that it would take some time for higher infrastructure spending to begin, construction growth was more subdued than expected.
Fixed asset investment increased by 5.7% from January to July year-on-year, falling short of expectations of 5.8% and declining from the previous reading.
At the beginning of the third quarter, however, sector stocks showed a significant decline in critical areas.
Infrastructure investment increased by 3.8% year-on-year in the first seven months, while slowing in the first half of the year despite massive issuance of government bonds, mainly to finance road and rail projects and other public works.
Data of the Japanese construction machinery manufacturer Komatsu Ltd. ( 6301.T ) showed that the activity remained weak. The operating hours of his machines in China fell for a fourth consecutive month.
In an indication that the resilience of the real estate market is slowing down when Beijing stops speculation, real estate investment has slowed to its weakest levels this year. It rose 8.5% yoy in July from 10.1% in June. Although home sales returned to growth, new construction cooled off.
Retail sales also point to growing consumer restraint. This is most evident in declining car sales, but also in property-related spending on appliances and furniture.
Retail sales increased 7.6% in July, a consensus of 8.6%, weaker than the most pessimistic forecast. Sales rose 9.8% in June, which many analysts had predicted to be temporary.
Worries about job security can also be a factor. Nationwide survey-based unemployment rose from 5.1% in June to 5.3%, although market observers believe it could be much higher.
"We hold to our view that (economic) growth has not yet bottomed out, and expect Beijing to maintain its policy of easing," said Nomura economists.
Nomura expects growth to slow to 6.0% in the third and fourth quarters, putting it at the bottom of the government's target corridor.
Authorities have already announced hundreds of billions of dollars in infrastructure spending and corporate tax cuts over the last year, and have repeatedly lowered banks' reserve requirements (RRRs) to free up more lending and reduce borrowing costs.
However, credit demand was lukewarm as companies were reluctant to borrow or invest due to uncertain business prospects and banks' fear of rising non-performing loans.
Sources recently told Reuters that more aggressive measures, such as interest rate cuts, are the last resort, as they could fuel a rapid increase in debt and financial risks.
Highlighting these concerns, the Politburo, a supreme decision-making body of the Communist Party, took the unusual step last month and announced that it would not use the real estate market as a short-term incentive.
ESCALING COMMERCIAL WAR
Recent months have been marked by a sudden escalation of the years-long trade war between the US and China, which has created both risks to economies and fears of a global recession.
A brief ceasefire shook earlier this month after US President Donald Trump pledged to raise 10 percent more Chinese goods from 1 September.
China dropped its yuan currency to an 11-year low. Call for the US Department of the Treasury to designate Beijing as a currency manipulator.
However, some relief came on Tuesday after Trump announced plans to postpone tariffs on some Chinese imports, including cell phones and other consumer goods, to mitigate the impact of tariffs on US holiday sales.
Nonetheless, next month, new tariffs on approximately half of Washington's $ 300 billion target list for Chinese goods will come into effect, and analysts say the likelihood of a lasting trade agreement has declined sharply following recent escalations.
coverage by Huizhong Wu, Yawen Chen and Stella Qiu; Edited by Kim Coghill