China economy shows new signs of weakness with soft factory data

Aug 14, 2019: China's economy showed further signs of strain in July with output at its factories falling to its lowest level in 17 years, while investment and retail sales also slowed, official data showed Wednesday.

The figures are the latest to highlight how the world's second-largest economy is being battered by an escalating trade war with the United States, weak global demand and deteriorating conditions at home.

Industrial output increased 4.8 percent on-year in July, down from 6.3 percent in June and marking the weakest pace since 2002.

It was also well below the 6.0 percent forecast by economists in a Bloomberg News survey.

“Given the complicated and grave external environment and the mounting downward pressure on the economy at home, the foundation for sustainable and healthy growth of the economy still needs to be consolidated,” said Liu Aihua, a spokeswoman for the National Bureau of Statistics, which released the data.

The data also suggested China's billion-strong army of consumers were showing signs of increasing thriftiness.

Retail sales — which have long been a bright spot for the economy — slowed to a 7.6 percent rise last month, sharply down from 9.8 percent in June.

– 'Economic conditions worsened' –

Liu attributed the weaker July numbers to a reversal in car sales as dealers unloaded thousands of vehicles at knock-down prices in June to beat tougher incoming emissions standards.

After deducting the car sales figures, “total retail sales of consumer goods in July increased by 8.8 percent year-on-year, which was basically the same as last month”, said Liu.

But Julian Evans-Pritchard, an analyst at Capital Economics, said the reversal only partly explained the slowdown.

The new batch of figures highlight the battle Beijing has in trying to navigate the country's economy from exports and credit-fuelled investment to one driven by domestic consumption.

The unemployment rate notched upwards to 5.3 percent in July from 5.1 percent in June.

Fixed-asset investment was up 5.7 percent in January-July, slowing from 5.8 percent in January-June. Spending on highways, high-speed trains and airports rose 3.8 percent, after years of near 20 percent increases.

“Economic conditions worsened across the board last month,” said Evans-Pritchard.

China's central bank last week allowed the yuan currency to fall below seven to the dollar for the first time in more than a decade, helping make 'Made in China' products cheaper around the world.

“A weaker renminbi is unlikely to fully offset the increasing headwinds from US tariffs and cooling global demand, and we expect a further slowdown in economic activity over the coming year as a result,” Evans-Pritchard said in a note.

– 'Wake-up call' –

China's gross domestic product growth slowed to 6.2 percent in the second quarter of the year — the weakest pace in almost three decades.

The economic malaise makes it more difficult for President Xi Jinping to fight back forcefully against Washington — which is using tariffs as leverage to try to force Beijing into opening up its markets.

Chinese exporters and US retailers did get a boost Tuesday as President Donald Trump's administration announced it was delaying tariffs on key consumer electronic goods imported from China, which had been slated for a 10 percent duty on September 1.

News that top US and Chinese trade officials spoke by telephone early Tuesday offered further signs of a possible letup in the trade war that had been escalating in recent weeks.

Still, markets have been waiting for months for more stimulus from the Chinese government to boost the flagging economy.

Surveying the latest data, Stephen Innes, managing partner at VM Markets said: “If this isn't a wake-up call to the (People's Bank of China), I'm not sure what is.”


Posted on: 2019-08-14T13:15:00+05:00