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 The output data, combined with weaker readings in retail sales,
investment and imports, pointed to a further loss of momentum as the
cooling housing market increasingly drags on other sectors from
cement to steel and saps consumer confidence.
Industrial output rose 6.9 percent in August from a year earlier -
the lowest since 2008 when the economy was buffeted by the global
financial crisis - compared with expectations for 8.8 percent and
slowing sharply from 9.0 percent in July.
"The August data may point to a hard landing. The extent of the
growth slowdown in the third quarter won't be small," said Xu Gao,
chief economist at Everbright Securities in Beijing.
"The chances of cutting interest rates and bank reserve requirements
have increased. I think they are more likely to cut interest rates."
Some analysts believe annual economic growth may be sliding towards
7 percent in the third quarter, putting the government's full-year
target of around 7.5 percent in jeopardy unless it takes more
aggressive action. Experts reckon output growth of around 9 percent
would be needed to attain such a goal.
"Short of outright policy easing, China will likely miss the 7.5
percent growth target this year, and a sharp economic slowdown will
endanger the undergoing structural reforms," Liu Li-Gang and Zhou
Hao at ANZ wrote in a note.
"As such, we reckon that Chinese authorities should further relax
monetary policy as soon as possible to prevent growth momentum from
decelerating further."
Reinforcing the tepid economic activity, China's power generation
declined for the first time in four years, falling 2.2 percent in
August from a year earlier, and pointing to slackening demand from
major industrial users.
Jiang Yuan, a senior statistician with the bureau, said the dip in
August factory growth was due to weak global demand, especially from
emerging markets, and the slowdown in the property sector that hit
demand for steel, cement and vehicles.
China's economy got off to a weak start this year as first-quarter
growth cooled to an 18-month low of 7.4 percent. Beijing responded
with a flurry of stimulus measures that pushed the pace up slightly
to 7.5 percent in the second quarter, but soft July and August data
suggest the boost from those steps is rapidly waning.
"The government must take forceful policy measures to stabilize
growth," said Li Huiyong, an analyst at Shenyin & Wanguo Securities
in Shanghai.
HARD LANDING?
Other activity indicators for August were also mostly weaker than
expected.
Retail sales climbed 11.9 percent, lagging forecasts of 12.1 percent
and July's 12.2 percent, with growth in car sales in particular off
sharply, suggesting consumers are more cautious.
Carmaker BYD Co Ltd, backed by billionaire Warren Buffett, recently
warned profit may fall by as much as a fifth in the first nine
months of the year.
Fixed-asset investment, an important driver of economic activity,
grew 16.5 percent in the first eight months from the same period
last year, lower than forecasts. Economists polled by Reuters had
expected 16.9 percent growth, slowing from 17.0 percent in Jan-July.
Much of the broader decline appears linked to the slowdown in the
property market, which is intensifying.
Property investment data also released on Saturday showed further
declines in sales and new construction, while growth in sales of
housing-related goods such as home appliances, furniture and
building materials all slowed.
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Mortgage issuance in the first eight months fell 4.5 percent from a
year earlier, worse than a 3.7 percent drop in January-July. Some
would-be buyers have complained of long delays in getting loans as
banks grow more cautious, while others may be holding off in
anticipation of further price declines.
Data on Friday showed that credit levels in China appeared to
improve in August after an alarming drop in July, but remained below
average. Bad loans are on the rise and banks expect more to go sour
as the economy slows.
That followed trade data that showed China's exports were buoyant
but import growth unexpectedly fell for the second consecutive month
in August, posting its worst performance in over a year.
STEADY EMPLOYMENT COULD TEMPER BEIJING'S RESPONSE
While most analysts expect Beijing to unveil more steps in coming
months in order to meet its 2014 growth target, the room for policy
loosening is seen as limited after past stimulus programs left local
governments saddled with piles of debt and fueled rampant
speculation, especially in the housing market.
Bolder action now, such as an interest rate cut, may only result in
more money going into speculative and potentially destabilizing
activity rather the real economy, some analysts have noted.
The last time China suffered a "hard landing" was during the height
of the global crisis, when economic growth tumbled to 6.6 percent in
early 2009. That is far short of the near collapses which loomed
over some developed economies, but still threw tens of millions of
Chinese out of work, alarming the Communist Party's
stability-obsessed leaders into action.
Despite slower growth, the economy still created 9.7 million new
jobs in the first eight months of 2014, a rise of over 100,000 from
the same period last year, said Guo Tongxin, another statistician at
the bureau, trying to play down the significance of the dismal
August indicators.
"It's normal to see fluctuations in some indicators. Currently, the
employment and price situation remains generally stable (and)
structural adjustments continue to make progress," Guo said in a
statement.
Premier Li Keqiang said on Monday that China cannot rely on loose
credit to lift its economy, and reassured a business forum that
Beijing would continue to roll out modest "targeted" measures as
policymakers look to shore up growth.
(Editing by Kim Coghill)
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