China Factory Slowdown Raises Pressure for Easing
China’s industrial-output growth unexpectedly slowed in July to a three-year low while investment and retail sales missed estimates, raising pressure on Premier Wen Jiabao to step up efforts to support expansion.
Factory production increased 9.2 percent in July from a year earlier, the National Bureau of Statistics said today in Beijing, below all 32 analyst forecasts in a Bloomberg News survey. Inflation cooled for a fourth month and producer prices fell for a fifth month, separate reports showed.
Asian stocks pared gains after the industrial data increased the risks that China’s economic-growth slowdown will worsen. Without a pickup in output in August and September, the pace of expansion may slow further this quarter, Bank of America Corp. said today, marking a seventh straight deceleration.
“The easing policies so far have not been fully passed through to the real economy, and we expect the government to focus more on implementation of already announced measures,” said Yao Wei, China economist at Societe Generale SA in Hong Kong. A cut in banks’ reserve requirement ratio may happen “any minute now,” Yao said.
The MSCI Asia Pacific Index (MXAP) of stocks gained 0.8 percent as of 5:30 p.m. in Tokyo after rising as much as 1 percent. China’s benchmark Shanghai Composite Index advanced 0.6 percent.
Lu Ting, Hong Kong-based economist at Bank of America, said in a note he sees “downside risk” to his 8 percent economic- expansion forecast for the third quarter. If industrial output growth stays around 9.2 percent this month and next, gross domestic product may rise 7.4 percent or 7.5 percent for the quarter, he said.
Barclays Plc today cut its 2012 growth forecast to 7.9 percent from 8.1 percent and its third-quarter prediction to 7.7 percent from 8.2 percent. Japan’s Komatsu Ltd., the world’s second-biggest construction equipment maker, last week lowered its earnings outlook as sales slump in China.
Fixed-asset investment excluding rural households increased 20.4 percent in the January to July period from a year earlier, the same pace as the first half. That compared with the 20.6 percent median estimate in a Bloomberg survey. Retail sales in July grew 13.1 percent from a year earlier versus a median forecast for 13.5 percent.
Electricity output rose 2.1 percent in July from a year earlier after unchanged production in June stoked concern that the economy’s slowdown was intensifying.
China’s passenger-car sales to dealerships in July rose 10.7 percent from a year earlier to 1.12 million units, the China Association of Automobile Manufacturers said today. That compares with the 1.16 million average estimate of 10 analysts surveyed by Bloomberg.
“Soft domestic demand and deteriorating external demand should keep the authorities on an easing bias,” Barclays economists including Chang Jian in Hong Kong said in a research note today.
The central bank cut interest rates in June and July, the first reductions since 2008, and lowered the reserve ratio three times since November as part of the government’s efforts to boost lending and support growth.
Consumer prices rose 1.8 percent from a year earlier, the statistics bureau said today. That compares with the 1.7 percent median forecast in a Bloomberg News survey and a 2.2 percent gain in June. The drop in producer prices deepened to 2.9 percent.
“Slowing inflation opens the room for further and more significant policy easing,” said Shen Jianguang, Hong Kong- based chief Asia economist for Mizuho Securities Asia Ltd., who previously worked for the International Monetary Fund and European Central Bank.
Inflation will rebound in the next few months, said Joy Yang, chief China economist at Mirae Asset Securities (HK) Ltd. in Hong Kong. Accelerating price gains means the window for further interest-rate cuts has closed, assuming no further deterioration in Europe, she said.
A U.S. drought is boosting prices of soybeans and corn used to feed China’s pigs, risking higher costs for pork, a staple meat. Pork prices fell 19 percent in July from a year earlier, dragging down inflation by 0.71 percentage point. In July 2011, pork jumped 57 percent.
Consumer inflation was the lowest since January 2010. Food inflation of 2.4 percent last month from a year earlier was the slowest since October 2009.
“Deflation, not inflation, is the greatest short-term threat to the Chinese economy,” Ren Xianfang and Alistair Thornton, analysts at IHS Global Insight in Beijing, said in a note today. Even so, “the drag on headline CPI from a food price slump could be coming to an end,” they said.
China’s GDP expanded 7.6 percent in the second quarter from a year earlier, the slowest pace in three years, as Europe’s debt woes crimped exports and Wen’s campaign to cool consumer and property prices damped domestic demand. Expansion may slide to 7.4 percent this quarter on weakness in overseas sales, Song Guoqing, an adviser to the central bank, said last month.
The government gives trade figures tomorrow and will release lending data by Aug. 15.
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