Bloomberg reported that China industrial output grew at the slowest pace in three years and President Mr Hu Jintao said economic expansion faces notable downward pressure signaling that officials may need to add further to stimulus after approving subway and road projects.
The National Bureau of Statistics said production increased 8.9% in August from a year earlier and fixed asset investment growth in the first eight months eased to 20.2%. Inflation accelerated for the first time in five months.
Food inflation accelerated for the first time in five months rising 3.4%YoY. Consumer prices increased 0.6% from the previous month, the biggest rise since January while food prices increased 1.5% from July.
The data underscore risks that full year growth in the world second-biggest economy will slide to its lowest in more than two decades and undermine support for the ruling Communist Party during its once a decade power transition to a new generation of leaders later this year. The rebound in inflation, excess capacity in some industries and banks’ bad loan risks from past monetary easing highlight the potential cost of ramping up stimulus efforts.
Mr Lu Ting chief China economist at Bank of America Corp in Hong Kong said “Politicians want a benign backdrop for their party congress gathering and slumping stock prices and a worsening growth slowdown could spoil the party. Putting together the economic fundamentals and the timing of major political events, there will be a second round of policy easing including cuts to banks’ reserve requirements and some fiscal stimulus.”
1. Trade Support
According to the median estimate in a Bloomberg News survey, Customs bureau data today may show exports rose 2.9%YoY slumping from a 24.5% pace in the same month last year. Overseas shipments in July rose 1% as sales to European Union countries fell and growth in US exports stalled.
According to an interview broadcast yesterday by China Central Television China Commerce Minister Chen Deming said specific measures to support and stabilize foreign trade will be announced soon. He also said the nation’s foreign trade situation in the fourth quarter will be better than in the third.
UBS AG and ING Groep NV on September 7 cut their forecasts for economic expansion this year to 7.5% amid a weakening global outlook and less forceful policy support than they previously expected. That would be the slowest pace since 1990.
ING lowered its estimate for China third quarter growth to 7.1% while UBS projects a 7.3% pace. The economy expanded 7.6% in the three months through June from a year earlier the least in three years and the sixth straight slowdown in growth.
2. Arduous Task
Speaking to business executives at an Asia-Pacific Economic Cooperation forum in Vladivostok on September 8, President Mr Hu said China’s small and medium-sized enterprises are having a hard time and exporters are facing more difficulties. The government has an arduous task of creating jobs for new entrants to the labor force.
Mr Hu also urged governments in the Asia-Pacific region to speed up infrastructure development, describing it as key to promoting recovery and achieving sustained and stable growth amid increasing downward risks to the global economy.
His comments followed a slew of announcements by the Chinese government approving new roads, railways and urban infrastructure that Nomura Holdings Inc estimates have a combined value of about CNY 1 trillion.
Source - Bloomberg
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