China data point to
steadier economy for now, but Trump victory adds to
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[November 14, 2016]
By Elias Glenn and Kevin Yao
(Reuters) - China's economy largely showed further signs of steadying in
October as expected, but disappointing retail sales growth and fears of
U.S. trade frictions under incoming President Donald Trump are
increasingly clouding the outlook.
Fixed-asset investment quickened slightly and beat expectations in
January-October as the government stepped up infrastructure spending to
support growth, official data showed on Monday.
But a number of other indicators released over the past week from
exports to bank lending, as well as expectations of a slowdown in the
heated property market, suggest economic momentum may falter in the
"On balance, today's data suggest that the recent recovery in economic
activity continued into the fourth quarter," Capital Economics said in a
"We expect growth to hold up well for another quarter or two. However,
with credit growth now slowing and the property market beginning to cool
the drivers of the recent recovery look set to fizzle out early next
China's leaders have depended on a surging real estate market and
government infrastructure spending to drive activity this year and look
set to meet their growth target of 6.5 to 7 percent. The construction
boom in turn has helped perk up the ailing industrial sector, spurring
demand for cement to steel.
But top policymakers and investors are also clearly growing more
concerned about the risks of prolonged debt-fueled stimulus.
China's overall debt has jumped to more than 250 percent of GDP from 150
percent at the end of 2006, the kind of surge that in other countries
has resulted in a financial bust or sharp economic slowdown, analysts
"I believe the overall policy tone has turned to risk management as the
authorities are concerned about asset bubbles," said Singapore-based
economist Zhou Hao at Commerzbank, predicting that the government will
throttle back its aggressive stimulus before the end of the year.
INVESTMENT STILL HEAVILY RELIANT ON GOVERNMENT
Fixed-asset investment expanded 8.3 percent in the first 10 months from
a year earlier, slightly ahead of market expectations and supported
largely by government spending.
Investment by state firms surged 20.5 percent, though the pace cooled
slightly from the first nine months.
In an encouraging sign, growth of private investment picked up to 2.9
percent from 2.5 percent in January-September, though it remained
sluggish after hitting a record low of 2.1 percent in the first eight
months of the year.
Private investment accounts for about 60 percent of overall investment
Chinese policymakers have been trying to lure private investors into big
infrastructure projects through public-private partnerships, but many
lucrative sectors are still dominated by less efficient state firms.
The most surprising miss for October was found in retail sales, though
analysts were quick to note it was too early to tell if slowing
consumption would turn into a trend.
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An employee works inside a chemical factory in Urumqi, Xinjiang
Uighur Autonomous Region, China, October 18, 2016. REUTERS/Stringer
Retail sales growth cooled to a five-month low of 10.0 percent from 10.7
percent in September. Analysts had forecast they would hold steady.
On Friday, Alibaba Group Holding Ltd's Singles' Day festival posted a
record 120.7 billion yuan ($17.73 billion) worth of sales, though the
gala shopping day saw growth slow as Chinese shoppers searched for
deeper discounts and lower price tags.
Statistics bureau spokesman Mao Shengyong blamed the sales slowdown on a
high level of comparison with last year.
"Consumption can maintain stable growth. There should not be a problem
achieving this year’s GDP growth targets," he told a news briefing.
October industrial output also missed expectations but to a much smaller
degree, rising 6.1 percent, the same pace as in September but marginally
less than forecast.
Stronger factory prices have helped boost industrial profits, relieving
some pressure on companies squeezed by higher costs and weak demand,
though there are concerns some of the gains are due to speculation and
are not sustainable.
Data last week showed a sharp slowdown in bank lending last month,
suggesting demand for mortgages is cooling after a spate of steps by
local governments last month to restrict home purchases to cool soaring
While property investment growth quickened in October to its highest
since April 2014, some analysts suggested it could be due to a
last-minute push by developers to complete construction projects as home
sales and surging prices start to slow.
October exports and imports also fell more than expected, adding to
doubts that the pick-up in economic activity in the world's largest
trading nation can be sustained even if a trade war with the U.S. does
Trump had lambasted China throughout the campaign, drumming up headlines
with his pledges to slap 45 percent tariffs on imported Chinese goods
and label the country a currency manipulator his first day in office.
China's top leaders are due to map out economic and reform plans for
2017 at the annual Central Economic Work Conference expected in
Analysts believe it's too early for the government to start withdrawing
policy support now due to rising domestic and global uncertainties,
despite the risk of added debt.
(Additional reporting by Beijing Monitoring Desk; Editing by Kim Coghill)
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