China’s imports unexpectedly fell and industrial output rose the least in three years, signaling more stimulus may be needed after the government last week said it approved subway and road projects across the nation.
Inbound shipments slid 2.6 percent in August from a year earlier as exports rose 2.7 percent, the customs bureau said in Beijing today. Production increased 8.9 percent, the National Bureau of Statistics said yesterday. Inflation accelerated for the first time in five months.
The data underscore risks that full-year growth in the world’s second-biggest economy will slide to the lowest in more than two decades, undermining support for the ruling Communist Party before a once-in-a-decade leadership transition due later this year. The rebound in inflation, excess capacity in some industries and banks’ bad debt risks from past monetary easing highlight the potential cost of ramping up stimulus efforts.
“Politicians want a benign backdrop for their party congress gathering and slumping stock prices and a worsening growth slowdown could spoil the party,” said Lu Ting, chief Greater China economist at Bank of America Corp. in Hong Kong. “Putting together the economic fundamentals and the timing of major political events, there will be a second round of policy easing including cuts to banks’ reserve requirements and some fiscal stimulus.”
The MSCI Asia Pacific Index (MXAP) pared gains of as much as 0.3 percent and was up 0.1 percent as of 2:28 p.m. in Tokyo after plans for European Central Bank bond buying and Chinese investment triggered a global rally last week. President Hu Jintao said Sept. 8 that China’s economy faces “notable downward pressure.”
Japan’s economy expanded in the second quarter at half the pace the government initially estimated, underscoring the risk of a contraction as Europe’s debt crisis caps exports, a government report showed today.
Gross domestic product grew an annualized 0.7 percent in the three months through June, less than a preliminary calculation of 1.4 percent. The nation’s current-account surplus fell to 625.4 billion yen ($8 billion) in July, the lowest for that month since 1996, according to a finance ministry report and Bloomberg historical data.
South Korea said it will add 5.9 trillion won ($5.2 billion) of economic support measures including extra spending and tax cuts as exports slow.
In Europe today, final second-quarter numbers will give the latest reading on a shrinking Italian economy, while France may report that industrial production declined in July.
China’s Commerce Minister Chen Deming said measures to support and stabilize trade will be announced soon, China Central Television reported yesterday. He also said trade in the fourth quarter will be better than in the third.
China’s trade surplus was a more-than-estimated $26.7 billion as imports fell for the first time since 2009 outside of the Lunar New Year, today’s report showed. Fixed-asset investment growth in the first eight months eased to 20.2 percent, yesterday’s reports showed.
Exports to the European Union dropped 12.7 percent in August from a year earlier, data showed.
“There is little that Chinese policy makers can do to change the situation of weak external demand,” said Yao Wei, China economist at Societe Generale SA in Hong Kong. “Import weakness is another indication of domestic demand deceleration.”
Declining commodity prices also contributed to the drop in imports, Zheng Yuesheng, head of the customs administration’s statistics department, said on state television.
The data put China’s goal of 10 percent trade growth this year further out of reach. Exports gained 7.1 percent in the first eight months of the year, while imports increased 5.1 percent.
UBS AG and ING Groep NV on Sept. 7 cut their forecasts for economic expansion this year to 7.5 percent amid a weakening global outlook and less forceful policy support than they previously expected. That would be the slowest pace since 1990.
ING lowered its estimate for China’s third-quarter growth to 7.1 percent while UBS projects a 7.3 percent pace. The economy expanded 7.6 percent in the three months through June from a year earlier, the least in three years and the sixth straight slowdown.
The pace of new job growth in urban areas has been slowing since April and May, Xin Changxing, vice minister of human resources and social security, said at a briefing in Beijing today. “The impact of slowing economic growth on employment is gradually showing up,” Xin said.
Job growth picked up in 22 of China’s provinces in the January-August period compared with a year earlier, while nine showed a deceleration, Xin said.
Shi Yonghong, vice president of the China Chamber of Commerce for Import and Export of Machinery and Electronic Products, said the nation faces challenges for export growth in the longer term.
“In the long run, China’s cost advantages are weakening, and the trend is very clear,” Shi said in a Sept. 8 interview at a trade fair in Xiamen. “Labor and resource costs are all rising. Without restructuring or innovation, China’s exports are doomed to stay weak.”
Speaking to business executives at an Asia-Pacific Economic Cooperation forum in Vladivostok on Sept. 8, President Hu said China’s small and medium-sized enterprises are having a “hard time” and exporters are facing more difficulties. The government has an “arduous task of creating jobs for new entrants to the labor force.”
Hu also urged governments in the Asia-Pacific region to speed up infrastructure development, describing it as key to promoting recovery and achieving sustained and stable growth amid increasing downward risks to the global economy.
His comments followed a slew of announcements by the Chinese government approving new roads, railways and urban infrastructure that Nomura Holdings Inc. estimates have a combined value of about 1 trillion yuan.
The news drove the Shanghai Composite Index (SHCOMP), China’s benchmark stock gauge, 3.7 percent higher on Sept. 7, the biggest gain in eight months. The index had previously dropped 17 percent from this year’s March 2 high as cooling economic growth hurt earnings.
Sany Heavy Industry Co. (600031) the nation’s biggest machinery maker, on Sept. 7 jumped the most since February 2009 and Anhui Conch Cement Co., China’s largest cement maker, had its biggest gain since July 2010, on optimism demand for their products will rise.
Inflation last month accelerated to 2 percent from a year earlier, the statistics bureau said yesterday. The decline in producer prices extended into a sixth month, with a drop of 3.5 percent.
“A renewed inflationary trend could prove to be a further complication to policy makers’ growth-inflation trade-off,” said Glenn Maguire, chief economist at consultant Asia Sentry Advisory in Sydney. “China will have enormous difficulties in crafting a policy response to these divergent price and activity trends.”
The increase in August industrial production was the weakest since May 2009. Power output rose 2.7 percent from a year earlier, the statistics bureau said, compared with 2.1 percent in July. Growth in production of rolled steel slumped to 1.4 percent.
Growth in fixed-asset investment excluding rural households in the first eight months was lower than the median estimate of 20.4 percent. Retail sales rose 13.2 percent from a year earlier in August, in line with the median economist estimate.
“Such a weak series of economic activity data should now seriously alert policy makers,” said Liu Li-Gang, chief China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. “The monetary policy stance will have to become more aggressive in order to arrest the rapidly deteriorating economy.”
Liu said the central bank will need to cut banks’ reserve requirement ratio by another 150 basis points this year.
Zhang Zhiwei, Hong Kong-based chief China economist at Nomura, said some leading indicators improved “very significantly” last month, pointing to better property and infrastructure investment in coming months.
“These suggest economic momentum will pick up soon,” said Zhang, who estimates growth will rebound to above 8 percent in the fourth quarter.
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