Chinese investment grew at its slowest pace in more than a decade in the first 10 months of the year, while factory output missed expectations, adding to pressure on authorities to adopt fresh measures to boost the economy.
The data will add to fears that weak investment will lead to a sharper-than-expected deceleration in China’s overall economy. But economists say slower growth is inevitable as China shifts to a growth model in which consumption plays a larger role. The challenge for policy makers is to ensure that the investment slowdown is gradual enough to avoid a spike in unemployment and acute stress in the financial system.
Fixed-asset investment grew 15.9 per cent in the year to October compared with a year earlier, the weakest pace since December 2001, dragged down by a slowdown in property investment amid a continuing decline in home sales.
Factory output grew at 7.7 per cent in October, below expectations of 8.0 per cent and the second-lowest monthly reading since 2009. Only August’s reading of 6.9 per cent was lower.
But there were signs the property market may have bottomed. Year-on-year sales fell 1.3 per cent in October, much slower than the 10.3 per cent decline in September. Local governments in most major cities have relaxed limits on mortgage lending put in place around 2010 when prices were soaring.
“This data is in line with our view of the economic outlook: growth momentum remains subdued, although not alarmingly so,” Louis Kujis, chief greater China economist at Royal Bank of Scotland, said in a note.
However, the weak headline data are likely to intensify debate over whether more aggressive easing steps are necessary. The central bank has adopted a series of targeted measures this year, mainly by offering loans to select banks. The economic planning agency recently approved a range of infrastructure projects, including railways, according to state media.
But the People’s Bank of China has refrained from stronger medicine such as a cut in benchmark interest rates or in banks’ reserve ratio requirements. Some analysts say more help is needed.
“Growth slowed despite further policy easing, which suggests the headwinds from the property market correction, severe overcapacity in many upstream industries and an overleveraged corporate sector are very strong,” Nomura economists led by Chang Chunhua wrote on Thursday.
Nomura forecasts an RRR cut before the end of the year and another in each quarter of 2015.
Advocates of the current light-touch approach say a gradual slowdown, especially in investment, is necessary and desirable in order to reduce industrial overcapacity and draw down unsold inventory in housing and basic commodity sectors.
“We expect the response of economic policy to remain restrained. Senior policy makers emphasise that as long as the labour market holds up, they can accept GDP growth falling somewhat below the government’s target of 7.5 per cent this year,” said Mr Kujis.
China’s economy grew at 7.3 per cent in the third quarter, the weakest pace in five years.