October data shows economy cooling further, need for
more policy support
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[November 13, 2014]
By Xiaoyi Shao and Kevin Yao
BEIJING (Reuters) - China's economy lost
further momentum in October, with factory growth dipping and investment
growth hitting a near 13-year low, testing the government's resolve to
avoid stronger stimulus measures.
The soft performance cemented the view that China is on track to
grow at its weakest pace in 24 years. But leaders remain reluctant
to use full-blown policy easing, such as cutting interest rates.
Fixed-asset investment, an important driver of growth, grew 15.9
percent in the first 10 months of the year from a year ago, the
National Bureau of Statistics said on Thursday. That was the weakest
pace since December 2001.
October factory output rose 7.7 percent, which was higher that
August's 6.9 percent but below forecasts and the second weakest pace
since the height of the global financial crisis.
November's reading could be weaker still, as many factories in
northern China shut early in the month to reduce air pollution as
Asia-Pacific leaders met in Beijing.
"All three activity indicators weakened moderately, suggesting the
downward trend in GDP growth has not been arrested yet. I would
expect growth to be lower in the fourth quarter than in the third
quarter," said Shuang Ding, an economist at Citi in Hong Kong.
He said industrial production of 7.7 percent roughly corresponded to
economic growth of 7.1 percent.
Despite a raft of stimulus measures, China's growth slowed to 7.3
percent in the third quarter, the weakest since the global financial
October retail sales growth eased to 11.5 percent, the slowest pace
since early 2006.
The anti-corruption drive spearheaded by President Xi Jinping has
hit sales of luxury goods and expensive dining and also cooled down
a craze among local governments to launch new investment projects.
Economists polled by Reuters had forecast retail sales and
industrial output to rise 11.6 percent and 8.0 percent, while fixed
asset investment was seen up 15.9 percent.
ROOM FOR POLICY EASING
Other data this week showed inflation remained near a five-year low,
highlighting sluggish domestic demand but leaving room for more
policy support measures.
"The easing bias remains. The People's Bank of China may roll over
the MLF (medium-term lending facility) in coming months to ensure a
stable supply of money, but I don't think there will be a big
stimulus," said Zhou Hao at ANZ in Shanghai.
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Analysts believe more support may be needed to offset the drag from
the cooling housing market, but are divided over whether Beijing
will take more forceful action such as cutting interest rates unless
there is a risk of a sharper slowdown.
A massive stimulus program during the global financial crisis left a
legacy of inflationary pressures and heavy debt.
Growth in real estate investment, which affects about 40 other
industries in China, cooled to 12.4 percent in the first 10 months
of 2014 from a year earlier.
New construction continued to fall, but a slump in property sales
showing signs of easing as banks quickened mortgage approvals and
offered better rates to some buyers.
Still, analysts doubted whether government moves in September to
lower mortgage rates would stem the slide as a glut of unsold units
hangs over the market. Many see the sector remaining weak well into
The central bank, which pumped 769.5 billion yuan ($125 billion)
worth of three-month loans into banks in September and October, has
pledged to keep its policy stance accommodative but stressed it will
not flood markets with cash.
Chinese leaders have repeatedly flagged they tolerate slower
economic growth as long as the job market remains strong.
(Additional reporting Jake Spring and Koh Gui Qing; Editing by Kim
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