China’s Economic Activity Slows in July

China’s economic activity slowed in July, with investment growing at its slowest pace in more than 16 years in the year-to period, as the world’s second-largest economy grappled with the painful restructuring of its older industrial sectors.

The pace of fixed-asset investment slipped to 8.1 percent in January-July from 9 percent in the January-June period. Analysts had expected it to rise 8.8 percent.

This is the third consecutive month of growth below 10 percent and the weakest year-to-date growth since December 1999, suggesting the effects of a credit boom in the first quarter are fading.

“People are worried about a lack of solid demand over the next few years so they aren’t really investing, especially in capex, which is the driving factor of the slowing investment,” said Zhou Hao, Senior Emerging Markets Economist at Commerzbank in Singapore.

While China’s consumption remains strong, investment and net exports are slowing, with the government likely to boost headline growth through fiscal policies.

Trade data this week showed a further drop in exports and a higher-than-expected decline in imports, suggesting sluggish demand at home and abroad.

David Qu, markets economist at ANZ in Shanghai, said while weak industrial activity is a sign of poor economic health, China is unlikely to use monetary policy to restore growth.

“Although economic activity isn’t very good, due to the need to continue to get rid of overcapacity, there’s not a lot of room to ease,” said Qu.

The fixed-asset investment retreat was led by a 22.9 percent decline in mining, suggesting the government’s goal of cutting production in older industrial sectors is working.

Real estate investment growth slowed to 5.3 percent but remains elevated.

The decelerating growth rate comes amid fears the country is accumulating too much debt at the local level.

Growth in investment by state firms cooled to 21.8 percent in Jan-July, from 23.5 percent in Jan-June.

Sheng Laiyun, a spokesman at the National Bureau of Statistics, said while companies from emerging sectors are willing to invest, some private firms still struggle to access financing.

“Most private companies have to rely on their own sources of funding,” Sheng told reporters at a press conference after the data.

“Despite efforts by the government, based on feedback from companies, they still face difficulties getting bank loans.”

Factory output rose 6.0 percent in July from a year earlier, below the 6.1 percent analysts had expected and consumption softened with retail sales growth easing to 10.2 percent after a rise of 10.6 percent the prior month.

Reuters

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell