China industrial growth slumps

Nationwide survey-based unemployment edged up in China in June, though many market watchers believe the rate could be much higher. (AFP)
Updated 15 August 2019
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China industrial growth slumps

  • Crude steel output down as production of motor vehicles continues to fall by double digits

BEIJING: China reported a raft of unexpectedly weak July data on Wednesday, including a slump in industrial output to more than 17-year lows, pointing to further slowing in the economy as the US trade war takes a heavier toll on businesses and consumers.

Activity in China has continued to cool despite a flurry of growth measures over the past year, raising questions over whether more forceful stimulus may be needed, even at the risk of racking up more debt.
After a flicker of improvement in June, analysts said the latest data was evidence that demand faltered across the board last month, from industrial output and investment to retail sales.
That followed weaker-than-expected bank lending and gloomy factory surveys, reinforcing expectations that more policy support is needed soon.
“China’s economy needs more stimulus because the headwinds are pretty strong and today’s data is much weaker than consensus,” said Larry Hu, head of Greater China economics at Macquarie Group in Hong Kong.
“The economy is going to continue to slow down. At a certain point, policymakers will have to step up stimulus to support infrastructure and property. I think it could happen by the end of this year.”
Industrial output growth slowed markedly to 4.8 percent in July from a year earlier, data from the National Bureau of Statistics showed, lower than the most bearish forecast in a Reuters poll and the weakest pace since February 2002.
Analysts had forecast it would slow to 5.8 percent, from June’s 6.3 percent. Washington had sharply raised some tariffs in May.
Infrastructure investment, which Beijing has been counting on to stabilize the economy, also dropped back, as did property investment, which has been a rare bright spot despite worries of potential housing bubbles.
Crude steel output fell for a second straight month in July, while production of motor vehicles continued to fall by double digits.
The industry ministry said last month that the country would need “arduous efforts” to achieve the 2019 industrial growth target of 5.5 percent to 6 percent, citing trade protectionism.
China’s economic growth cooled to a near 30-year low of 6.2 percent in the second quarter, and business confidence has remained shaky, weighing on investment.
While officials have cautioned it would take time for higher infrastructure spending to kick in, construction growth has been more muted than expected.
Fixed-asset investment rose 5.7 percent in January-July from the same period last year, lagging expectations of a 5.8 percent gain, the same as January-June.

HIGHLIGHTS

• Pressure building on economy internally and externally.

• July industrial output rises at weakest pace since 2002.

• Retail sales growth hurt by lower auto sales.

But readings by sector showed a more marked loss of momentum in critical areas at the start of the third quarter.
Infrastructure investment — a powerful growth driver — rose 3.8 percent in the first seven months from a year earlier, slowing from 4.1 percent in the first half despite massive local government bond issuance, mainly to fund road and rail projects and other civic works.
Data from Japanese construction equipment maker Komatsu showed activity remained weak in China in July, with operating hours for its machines falling for a fourth straight month.
In a sign the housing market’s resilience may be waning as Beijing cracks down on speculation, property investment slowed to its weakest this year. It rose 8.5 percent on-year in July, from June’s 10.1 percent. Though home sales inched back to growth, new construction starts cooled.
Retail sales are also pointing to growing consumer caution, most evident in falling auto sales but also in property-related spending on items such as home appliances and furniture.
Retail sales rose 7.6 percent in July, well off a consensus of 8.6 percent and weaker than the most pessimistic forecast. Sales had jumped 9.8 percent in June, which many analysts had predicted would be temporary.
Job security worries may also be a factor. Nationwide survey-based unemployment edged up in June, though many market watchers believe it could be much higher.
“We maintain our view that (economic) growth has yet to bottom out and expect Beijing to maintain its easing policy stance,” economists at Nomura said in a note.
Nomura expects growth will slow to 6 percent in the third and fourth quarters — the bottom end of the government’s target range.
Authorities have already announced hundreds of billions of dollars in infrastructure spending and corporate tax cuts over the last year, and repeatedly cut bank’s reserve requirements (RRR) to free up more funds for lending and reduce borrowing costs.
But credit demand has been tepid, with companies in no mood to make investments given the cloudy business outlook and banks wary of rising bad loans.
Sources told Reuters recently that more aggressive action such as interest rate cuts are a last resort, as it could fuel a rapid build-up in debt and financial risks.
Recent months have been marked by a sudden escalation in the US-China trade war that has raised pressure on both economies and sparked fears of a global recession.
A brief ceasefire was shattered earlier this month after US President Donald Trump vowed to impose a 10 percent tariff on $300 billion of Chinese imports from Sept. 1.


Squabbles erupt as G7 leaders open summit in French resort

Updated 25 August 2019
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Squabbles erupt as G7 leaders open summit in French resort

  • Disputes on trade, climate may eclipse Macron’s agenda
  • EU’s Tusk warns of lack of global unity, spars with Johnson

BIARRITZ, France: Squabbles erupted among G7 nations on Saturday as their leaders gathered for an annual summit, exposing sharp differences on global trade tensions, Britain’s exit from the EU and how to respond to the fires raging in the Amazon rainforest.
French President Emmanuel Macron, the summit host, planned the three-day meeting in the Atlantic seaside resort of Biarritz as a chance to unite a group of wealthy countries that has struggled in recent years to speak with one voice.
Macron set an agenda for the group — France, Britain, Canada, Germany, Italy, Japan and the United States — that included the defense of democracy, gender equality, education and the environment. He invited Asian, African and Latin American leaders to join them for a global push on these issues.
However, in a bleak assessment of relations between once-close allies, European Council President Donald Tusk said it was getting “increasingly” hard to find common ground.
“This is another G7 summit which will be a difficult test of unity and solidarity of the free world and its leaders,” he told reporters ahead of the meeting. “This may be the last moment to restore our political community.”
US President Donald Trump had brought last year’s G7 summit to an acrimonious end, walking out early from the gathering in Canada and rejecting the final communique.
Trump arrived in France a day after responding to a new round of Chinese tariffs by announcing that Washington would impose an additional 5% duty on some $550 billion worth of Chinese imports, the latest escalation of the tit-for-tat trade war by the world’s two largest economies.
“So far so good,” Trump told reporters as he sat on a seafront terrace with Macron, saying the two leaders had a special relationship. “We’ll accomplish a lot this weekend.”
Macron listed foreign policy issues the two would address, including Libya, Syria and North Korea, and said they shared the objective of preventing Iran from obtaining nuclear weapons.
Trump later wrote on Twitter that lunch with Macron was the best meeting the pair has yet had, and that a meeting with world leaders on Saturday evening also “went very well.”
However, the initial smiles could not disguise the opposing approaches of Trump and Macron to many problems, including the knotty questions of protectionism and tax.
Before his arrival, Trump repeated a threat to tax French wines in retaliation for a new French levy on digital services, which he says unfairly targets US companies.
Two US officials said the Trump delegation was also irked that Macron had skewed the focus of the G7 meeting to “niche issues” at the expense of the global economy, which many leaders worry is slowing sharply and at risk of slipping into recession.
French riot police used water cannons and tear gas on Saturday to disperse anti-capitalism protesters in Bayonne, near Biarritz. A police helicopter circled as protesters taunted lines of police.
The leaders themselves were gathering behind tight security in a waterfront conference venue, the surrounding streets barricaded by police.

Spat over ‘Mr. No Deal’ Brexit
Macron opened the summit with a dinner at the base of a clifftop lighthouse overlooking Biarritz, where a menu of piperade, a Basque vegetable specialty, tuna and French cheeses awaited the leaders.
Adding to the unpredictable dynamic between the G7 leaders are the new realities facing Brexit-bound Britain: dwindling influence in Europe and growing dependency on the United States.
New Prime Minister Boris Johnson will want to strike a balance between not alienating Britain’s European allies and not irritating Trump and possibly jeopardizing future trade ties. Johnson and Trump will hold bilateral talks on Sunday morning.
Johnson and Tusk sparred before the summit over who would be to blame if Britain leaves the EU on Oct. 31 without a withdrawal agreement.
Tusk told reporters he was open to ideas from Johnson on how to avoid a no-deal Brexit when the two men meet.
“I still hope that PM Johnson will not like to go down in history as Mr.No Deal,” said Tusk, who as council president leads the political direction of the 28-nation European Union.
Johnson, who has said since he took office last month that he will take Britain out of the bloc on Oct. 31 regardless of whether a deal can be reached, later retorted that it would be Tusk himself who would carry the mantle if Britain could not secure a new withdrawal agreement.
“I would say to our friends in the EU if they don’t want a no-deal Brexit then we’ve got to get rid of the backstop from the treaty,” Johnson told reporters, referring to the Irish border protocol that would keep the border between Northern Ireland and EU member Ireland open after Brexit.
“If Donald Tusk doesn’t want to go down as Mr.No Deal then I hope that point will be borne in mind by him, too,” Johnson said on his flight to France.
Johnson is trying to persuade EU leaders to drop the backstop from a withdrawal agreement that was negotiated by his predecessor but rejected three times by the British Parliament as the United Kingdom struggles to fulfill a 2016 referendum vote to leave the bloc.

‘Not the way to proceed’
Despite the Brexit tensions, diplomats played down the likelihood of Trump and Johnson joining hands against the rest, citing Britain’s foreign policy alignment with Europe on issues from Iran and trade to climate change.
“There won’t be a G5+2,” one senior G7 diplomat said.
Indeed, Johnson said he would tell Trump to pull back from a trade war that is already destabilising economic growth around the world.
“This is not the way to proceed,” he said. “Apart from everything else, those who support the tariffs are at risk of incurring the blame for the downturn in the global economy, irrespective of whether or not that is true.”
Anti-summit protests have become common, and on Saturday thousands of anti-globalization activists, Basque separatists and “yellow vest” protesters marched peacefully across France’s border with Spain to demand action from the leaders.
“It’s more money for the rich and nothing for the poor,” said Alain Missana, an electrician wearing a yellow vest — symbol of anti-government protests that have rattled France for months.
EU leaders piled pressure on Friday on Brazilian President Jair Bolsonaro over fires raging in the Amazon rainforest.
Even so, Britain and Germany were at odds with Macron’s decision to pressure Brazil by blocking a trade deal between the EU and the Mercosur group of Brazil, Argentina, Uruguay and Paraguay.
A spokesman for German Chancellor Angela Merkel said not concluding the trade deal was “not the appropriate answer to what is happening in Brazil now.”
The UK’s Johnson appeared to disagree with Macron on how to respond. “There are all sorts of people who will take any excuse at all to interfere with trade and to frustrate trade deals and I don’t want to see that,” he said.