Chinese investment in houses, factories, railways and other fixed assets grew at the slowest pace on record last month, the latest sign of a weakening economy as China braces for the impact of US tariffs.
China has announced a series of economic stimulus measures following second-quarter economic growth that came in at the slowest pace since 2016. The slowdown is occurring despite the fact that the impact from a trade war with the US has not yet appeared in export data.
Fixed-asset investment grew 5.3 per cent in the first eight months of the year, the lowest figure since at least 1995 and the fifth consecutive record low. A Reuters poll had forecast year-to-date growth of 5.5 per cent, the same as in July.
“Overall, the economy kept decelerating in 3Q18, but it’s an exaggeration to call it ‘terrible’ and ‘collapsing’,” Larry Hu, China economist at Macquarie Securities in Hong Kong, wrote on Wednesday, referring to descriptions of China’s economy by US president Donald Trump and White House economic adviser Larry Kudlow.
The slowdown included a drop in infrastructure spending. This perplexed analysts, as spending on roads, railways and water projects has been a key focus of stimulus measures announced in recent months.
But analysts say that a recent wave of bond sales by local governments and further sales in the pipeline are likely to prompt a rebound in infrastructure spending.
Local government bond sales totalled Rmb712bn ($104bn) in August versus only Rmb357bn a year earlier. Corporate bond sales — which include sales by local governments’ off-budget financing vehicles — also grew strongly.
On the positive side, factory output and retail sales both accelerated. Retail sales rose 9 per cent in August from a year earlier, up from 8.8 per cent growth in July and slightly ahead of estimates. Industrial output increased at a 6.1 per cent annual pace, up from 6 per cent in July.
Still, analysts say that if growth continues to deteriorate, Beijing may be forced to ratchet up support for the economy, despite earlier pledges that recent fiscal and monetary easing are “fine tuning” rather than a “floodwater-style” stimulus of the type adopted in 2008-10.
“Despite the rebound of IP [industrial production] and retail sales growth, we believe China’s overall economy continues to slow, and this could worsen in coming months,” wrote Ting Lu, chief China economist at Nomura in Hong Kong.
“Export growth could decline sharply in coming months due to a possible escalation of US-China trade tensions, the fallout of some emerging market economies, and the end of front-loading,” he added, referring to suspicions that Chinese exports this year were inflated by extra shipments designed to reach the US before tariffs took effect.
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