China Data Add to Doubts About Beijing’s Ability to Meet Growth Target
BEIJING—Two Chinese economic reports gave a glimpse of the growing challenge for Beijing in reaching its
full-year growth target of about 7%.
Factory production and fixed-asset investment in China were both weaker than expected in August, a month when Beijing
temporarily closed some factories ahead of a high-profile military parade.
The data released Sunday pointed to continued weakness across large swaths of the world’s second-largest economy, heaping more pressure on the government to seek to further stimulate activity.
“This is very disappointing data,” said ANZ economist Li-Gang Liu. “It’s very difficult to see Premier
Li Keqiang getting his 7% growth target this year.”
China’s industrial production grew 6.1% year-over-year in August, according to the National Bureau of Statistics. While this was marginally faster than July’s 6.0% level, it compared with an already very low reading in August of 2014 and fell well below a median 6.6% forecast by 12 economists in a Wall Street Journal survey.
Fixed-asset investment in nonrural areas of China rose 10.9% in the January-August period compared with the year-earlier period. This was also below expectation and slower than the 11.2% increase recorded in the January-July period.
Retail sales in China increased by a better-than-expected 10.8% year-over-year in August, accelerating from a 10.5% year-over-year increase in July.
Questions over the health of China’s economy have
rattled global markets in recent weeks amid concern that the slowdown could be worse than expected.
A
chemical explosion in the port city of Tianjin in August and temporary
pollution-related factory closures near Beijing in advance of the Sept. 3 parade to commemorate the end of World War II probably further eroded factory production, said ING economist Tim Condon, although he said market volatility was probably a bigger factor. “It will be good to get August behind us,” Mr. Condon said.
At a meeting of global business leaders in northeast China last week, Premier Li said achieving 7% growth in the first half “has not been easy” but added that systemic risk has abated and
the economy remains on track to meet all major targets this year.
Nevertheless, in issuing Sunday’s data, the statistics bureau warned of continued headwinds. “The foundation for the recovery is not solid,” it said on its website. “External and internal demand for industrial products remains weak and industrial production still faces relatively big downward pressure.”
Economists said they expect China to again cut required bank reserves in the next few months and further pressure local government officials to accelerate infrastructure spending in a bid to boost growth.
“I’m sure the government’s thinking, now that summer has passed, they can stop worrying about financial volatility and support the real economy,” said Conference Board economist Andrew Polk. “I wouldn’t rule out another interest-rate cut if they thought it would work.”
China’s economy has struggled despite five interest rate cuts and several reductions in required bank reserves since November. Even if China achieves its about 7% growth target in 2015 it would be the economy’s slowest annual pace in 25 years.
The Ministry of Finance recently took another step to ease the debt burden of local governments, announcing the third phase of
a plan to convert local-government debt into instruments with lower interest rates and longer maturity. The total amount of debt under this program this year now stands at 3.2 trillion yuan (US$502.1 billion). Helping local governments deal with their debts is, in part, intended to free up money for more infrastructure spending.
China’s policy banks, led by China Development Bank, will also play an important role in providing infrastructure funds in coming months, said China Merchants Securities economist Zhang Yiping.
August’s better-than-expected retail sales figures were a positive sign given earlier concern that volatility in China’s stock markets could dent retail confidence, said Oliver Barron, China research head with investment bank North Square Blue Oak. But continued weak investment figures show that government spending still hasn’t kicked in and property investment remains disappointing, he added.
“The third quarter will likely see growth of 6.5% at the low to 6.7%,” said Mr. Barron. “So they would need to see a notable improvement in the last three months of this year if they’re going to get close to their 7% target,” he added.
Housing sales rose 18.7% in the first eight months of the year, while real-estate investment rose 3.5% from January to August, down from double-digit levels recorded in recent years, the statistics agency reported.
China Data Add to Doubts About Beijing’s Ability to Meet Growth Target - WSJ
