China Output Growth Weakens; Inflation Accelerates
By Bloomberg News - Aug 11, 2010 6:50 AM GMT+0200
Aug. 11 (Bloomberg) -- David Riedel, president of Riedel Research Group Inc., talks about the outlook for China's economy and property market. Riedel speaks with Deidre Bolton on Bloomberg Television's "InsideTrack." (Source: Bloomberg)
China's industrial output rose the least in 11 months, retail sales growth eased and new loans climbed less than estimated, adding to signs that a slowdown in the world's third-biggest economy is deepening.
Production rose 13.4 percent in July from a year earlier, the statistics bureau said in Beijing today. Inflation quickened to 3.3 percent, the fastest in 21 months, boosted by a low year-earlier base for comparison and rising food costs.
The government is cracking down on real-estate speculation, curbing credit and closing factories to meet energy-efficiency targets after three quarters of growth of more than 10 percent. China can sustain an expansion of more than 9 percent in the third and fourth quarters, with inflation likely to peak this month and then fall, Morgan Stanley said.
"The overall picture is quite benign and a soft landing is underway," Wang Qing, a Hong Kong-based economist with Morgan Stanley, told Bloomberg Television. The government may ease investment controls and a 7.5 trillion yuan ($1.1 trillion) annual limit on lending in the fourth quarter, Wang said.
The Shanghai Composite Index was little changed as of the 11:30 a.m. local time break in trading after earlier rising as much as 0.9 percent.
Inflation Matches Estimates
July's inflation matched the 3.3 percent median estimate in a Bloomberg News survey of 29 economists. In June, prices rose 2.9 percent.
The government can meet a full-year target of 3 percent even as wages and global grain prices climb, statistics bureau spokesman Sheng Laiyun told reporters. The "lagging effect" of low bases for comparison pushing up the annual rate will fade from this month, he said.
Retail sales, new lending, producer prices and money supply increased at a slower pace in July and by less than economists had estimated. Urban fixed-asset investment rose 24.9 percent in the first seven months from a year earlier, the statistics bureau said. That compared with a median estimate of 25.3 percent and a 25.5 percent gain in the first half.
Investment is maintaining "strong momentum" and will be boosted by plans for regional development, including in the nation's west, and a pickup in private spending, Sheng said.
Tom Albanese, the chief executive of Rio Tinto Group, the world's third-biggest mining company, said Aug. 5 that economic growth of between 8 percent and 9 percent would be more sustainable for China, limiting bubble risks.
Lending Cools
July's industrial-output growth matched economists' median estimate. In June, the increase was 13.7 percent. July's gain was the smallest since August last year after excluding distortions caused by holidays at the start of each year.
New loans were 532.8 billion yuan last month, the central bank said in a separate statement today. That was less than the 600 billion yuan median estimate in a survey of economists and below June's level. M2, the broad measure of money supply, rose 17.6 percent, the least in 20 months.
Money-supply growth is "too restrictive" and may damp domestic demand, Goldman Sachs Group Inc. economists Song Yu and Helen Qiao said. Royal Bank of Scotland Plc said July's reduced lending could reflect off-balance-sheet transactions by banks.
Morgan Stanley estimated Aug. 9 that the government's energy-saving efforts could shave 1.5 percentage points from full-year industrial-output growth. In the latest phase of the campaign, officials told companies including Aluminum Corp. of China Ltd., the nation's No.1 producer of the metal, and steelmaker Hebei Iron & Steel Group, to shut outdated plants by the end of September.
Retail Sales
Retail sales grew an annual 17.9 percent in July, compared with 18.3 percent in the previous month, the bureau said. Economists had estimated an 18.5 percent increase. Producer price inflation slowed to 4.8 percent from 6.4 percent in June.
The government is tightening oversight of bank lending after a record expansion of credit in 2009 and limiting multiple-home purchases to prevent real-estate bubbles.
In the latest move, the banking regulator has ordered lenders to transfer off-balance-sheet loans onto their books and make provisions for those that may default, three people with knowledge of the situation said yesterday.
The Shanghai Composite Index slumped by the most in six weeks yesterday after reports showed the property market cooling and imports rising at the slowest pace in nine months.
Easing Inflation
China International Capital Corp. sees inflation gradually slowing in the second half as the economy cools and commodity costs have only limited increases. London-based Capital Economics Ltd. said this week that the impact from floods that pushed up food costs should be "short-lived" and inflation may be in "sharp decline" by year-end.
Policy makers may allow larger gains by the yuan against the dollar in the next two months to counter price pressures, given that the government is "reluctant to raise interest rates," UBS AG economist Wang Tao said yesterday.
Growth in the world's fastest-growing major economy slowed to 10.3 percent in the second quarter from 11.9 percent in the first three months of the year. Premier Wen Jiabao's cooling measures come as export orders soften.