China Slowdown Deepens as Leaders Said to Mull Target Cut

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China Factory Production
An employee inspects a circuit board in a manufacturing facility at ZTE Corp.'s headquarters in the Nanshan district of Shenzhen, China. Factory production rose 7.7 percent from a year earlier, the National Bureau of Statistics said today in Beijing. Photographer: Brent Lewin/Bloomberg

China’s slowdown deepened in October as policy makers refrained from economy-wide stimulus, with industrial output and investment trailing estimates.

Factory production rose 7.7 percent from a year earlier, the second weakest pace since 2009, a government report showed today. Investment in fixed assets such as machinery expanded the least since 2001 from January through October, and retail sales gains also missed economists’ forecasts last month.

The government has kept to targeted steps to shore up the economy this year, rather than a broader response such as nationwide interest-rate cuts, to avert a repeat of a buildup in debt from the record 2008-2009 credit surge. With the focus instead on structural changes, leaders have discussed lowering their economic growth target for 2015.

“The data highlights downward pressure,” said Dariusz Kowalczyk, senior economist at Credit Agricole SA in Hong Kong. “It will encourage further monetary easing.”

After the figures, reports spread of a fresh initiative by the central bank to target liquidity injections. The People’s Bank of China is gauging city commercial banks’ demand for funds to support lending to small enterprises, according to an official with knowledge of the matter. The PBOC didn’t immediately respond to requests for comment.

Financial institutions in some provinces, including Jiangsu and Zhejiang, are submitting applications for collateralized central bank loans, according to the official. The PBOC will later decide the total size of the injections, which could run into tens of billions of yuan, the official said.

‘Prudent’ Policy

“Monetary policy will remain prudent with targeted easing,” said Zhu Qibing, macro economy analyst at China Minzu Securities Co. “Since October, the NDRC has been actively approving infrastructure projects, which is a clear attempt to stabilize growth.”

The National Development and Reform Commission, China’s top economic planning body, accelerated approvals for $113 billion of infrastructure projects, China National Radio reported last week. The 21 projects, including 16 railways and five airports, were approved between Oct. 16 and Nov. 5, according to the state broadcaster.

The Shanghai Composite Index fell 0.4 percent today.

Growth in retail sales of 11.5 percent in October compared with the 11.6 percent median projection of analysts surveyed by Bloomberg. The expansion in January through October fixed-asset investment excluding rural households was 15.9 percent versus estimates for a 16 percent increase.

APEC Shutdown

Factory gate prices fell 2.2 percent in October, a record 32nd straight decline, data this month showed. Factory output in November may be weighed by restrictions on pollution-intensive industries and construction in Beijing and five surrounding provinces, as the government sought cleaner skies for the Asia-Pacific Economic Cooperation forum.

Electricity output grew 1.9 percent from a year earlier in October, compared with September’s 4.1 percent increase, according to a statement from the National Bureau of Statistics. Analysts at Australia & New Zealand Banking Group Ltd. expect industrial production expansion could slow in November after northern provinces shut some steel mills to meet environmental requirements.

Leaders have discussed lowering the 2015 economic-growth target, according to a person with knowledge of the talks, giving more room to push structural changes aimed at lowering financial risks. China is headed for its slowest full-year expansion since 1990.

Growth Target

The central leading group for financial and economic affairs discussed growth targets including 7 percent, 7.3 percent, and below 7.5 percent, said the person, who asked not to be named because the discussions are private. The figure hasn’t been decided on, the person said. The State Council Information Office didn’t immediately respond to faxed questions seeking comment.

While GDP targets have historically been used as a baseline which the nation surpassed, that has changed this year with policy makers refraining from broad stimulus.

A survey of economists by Bloomberg News last month showed an expectation for a 2015 growth target of about 7 percent.

Property development investment in January through October gained 12.4 percent from the same period a year ago, the NBS said today. Property sales by value fell 7.9 percent in the period with residential transactions tumbling 9.9 percent.

“The real estate sector remains a drag on the economy,” Louis Kuijs, Royal Bank of Scotland Group Plc’s chief Greater China economist in Hong Kong, wrote in a note. “We expect the policy stance to remain supportive of growth, by stimulating infrastructure investment and urbanization, further relaxing of property market policies and taking more ‘targeted’ monetary easing steps.”

— With assistance by Xiaoqing Pi

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