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China investment slows

September 14, 2018

China's economy has revealed fresh signs of softness as the pace of investment has slowed to a record low. Stable figures for retail spending and production have done little to dispel fears of a cooling in the economy.

Ghost Cities China Dongguan
Image: Getty Images/L. Yik Fei

Investment data released by China's National Bureau of Statistics on Friday, showed that fixed-asset investment — a key economic driver for China —  expanded just 5.3 percent between January and August, compared with the same period last year, the slowest pace on record.

In the month of August, the gauge came in at just 4.6 percent over the year, as growth in infrastructure spending slowed to 4.2 percent.

Private sector fixed-asset investment, which accounts for about 60 percent of overall investment, also eased, though only marginally with a growth rate of 8.7 percent.

Mao Shengyong, a spokesman for the statistics bureau, said he expected investment data to "stabilize" over the coming months, but added: "Talking of a rebound I suspect the difficulty will be relatively big."

Read more: Are we about to face a new Asian financial crisis?

Under efforts to curb sluggish growth, the government in Beijing announced in July it would accelerated approvals for road and rail projects — a policy it often uses in times of downturns. But analysts don't expect the measures to support growth until early next year.

Brighter spots?

China's August data also provided some seemingly good news, however. Especially a 6.1-percent rise in industrial output from a year earlier was a tick better than in July.

Retail sales were also stronger, rising 9 percent and driven by jewelry and home appliances. But a closer examination of both data series points to signs of underlying weakness.

Soaring household debt in China

Exports contributed significantly to industrial output growth, but are the result of companies rushing out products to head off potentially higher US tariffs to be imposed on Chinese goods by the Trump administration.

By contrast, production of key goods such as automobiles and transport equipment continued to decline or barely grew, while steel mills, aluminum smelters and oil refiners all cut back output from recent high levels. Growth in semiconductors and industrial robots slowed sharply.

China's Communist rulers are facing a delicate balancing act because they want to shift the country's growth model away from a strong dependence on investment and exports towards personal consumption.

Read more: Fresh US-China trade talks in the making as tariffs loom

A trade dispute with the administration of US President Donald Trump is complicating the task. Trump is determined to reduce America's huge trade deficit with China and has threatened to impose higher tariffs on all of its exports to the US. A first round of tariffs worth $50 billion already came into effect in July, with China having retaliated with tariffs of its own.

Slowdown looms

China's National Bureau of Statistics said the trade conflict with the US had a limited effect on economic data so far. But they are skeptical that this will hold in the future.

Analysts from Nomura bank in Japan believe China's economy will continue to slow, saying in a note to investors export growth could "decline sharply" due to a possible escalation of US-China trade tensions, the fallout of some emerging market economies and the end of front-loading.

Nomura and other China watchers expect more growth-boosting measures from Beijing to cushion the economy, but some warn high debt levels may give policymakers less room for stimulus than in the past.

Capital Economics economist Julian Evans-Pritchard wrote in a note: "Policy stimulus has so far failed to drive a turnaround in infrastructure spending or broader credit growth, even as the property sector is coming under renewed pressure from regulatory tightening." He added that government measures would do little to change his view that China's growth was "weakening."

uhe/tr (Reuters, AFP)