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

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.


Frank Kane’s Davos diary: Swiss efficiency lapses, but so far Davos lives up to the cuckoo-clock image

Updated 22 January 2020

Frank Kane’s Davos diary: Swiss efficiency lapses, but so far Davos lives up to the cuckoo-clock image

Davos comes and Davos goes, but over the last five decades, the one thing you can rely on is Swiss efficiency, right? The trains run on time, the cuckoo clocks chime on the hour, and the snow is swept from the pathways within minutes of the first fake falling. That is the common (even cliched) view of the Alpine nation and its showpiece event, the World Economic Forum (WEF) annual meeting in Davos.

But — and whisper it very gently beneath your breath — maybe the legendary standards of Swiss efficiency are slipping as the WEF celebrates its 50th birthday. Evidence of a lapse from the highest levels of attainment came at Zurich Airport, when the luggage belt seized up inexplicably, and a full 10 minutes elapsedbefore a maintenance man came to attend to it. Tut tut.

Further signs of falling standards were on display at the railway station. The booking desks were besieged, as usual, by WEF delegates keen to complete the final leg of their journey up the Magic Mountain — a two-hour rail journey involving two stops at increasingly higher altitudes.

But only two of the 10 grills were manned, and the line grew longer and more grumpy with each passing minute. The mood was not helped when some trains were canceled and an extra hour was added to the journey. There was much muttering and dark looks shot when the train finally pulled into Klosters.

But thankfully, once you got to the heart of WEF-land, normal service was resumed. There had been a reasonable fall of snow that morning, which gave the place its usual fairytale appearance, but no traffic snarl ups as in previous years, when massive snowfall had caused the place to grind to a halt.

The shuttle buses that are the arterial life-channels of Davos — for those whose budgets do not extend to the black Mercedes limo — were running with their usual Swiss punctuality: Every 10 minutes or so, or even more frequently during peak rush hours.

These, in my experience over the past few years, are becoming frequently extended. Having battled through the registration process and attended one event at the nearby Seehof hotel, I imagined it would be easy to catch a ride on a virtually empty shuttle back to Klosters at around 9.30 p.m. But even at that hour, there was a long queue of unhappy souls waiting to make the same 20-minute trip to the other side of the mountain and their warm, welcoming hotel rooms.

It was the same thing on the opening morning of the annual meeting. I left my hotel — the homely and comfortable Cresta in Klosters — at 7 a.m. in the dark, and at minus 5 degrees Celsius. Again, there was a crowd of people standing huddled at the shuttle stop, shivering and stamping their feet.

The WEF shuttle service was up to the job, however, and I got into the Congress Hall with little trouble. The airport-style screening process — maybe a little more thorough than usual in view of the impending arrival of US President Donald Trump — passed smoothly. One request though: Please WEF, install some hot-air machines in the security hall. The body shock when you remove outer clothing to pass through the metal detectors was wicked.

Then down to business, which for a journalist at Davos means finding somewhere in the congress complex where you can rest a laptop while also providing a good people-watching vantage point. Over the years, I have learned that the Central Lounge — strategically located between the main plenary meeting halls and the (private) members lounge and bilateral rooms — is the perfect spot. Now, who will come my way in Davos 2020?