China economy: growth target in doubt as investment and factory output stutters

China economy: growth target in doubt as investment and factory output stutters

Disappointing investment and factory output data point to “very weak” economy
that will need more government support, economists warn

Chinese
investment grew at the slowest pace in 15 years in the first eight months of
2015 as factory output disappointed, raising fears that third quarter growth
would drop below 7pc for the first time since the financial crisis.

Fixed-asset investment, which covers expenditure on a wide range of assets
from plant and machinery to infrastructure, expanded by 10.9pc in the year
to August.

This was weaker than the 11.1pc increase expected by economists and represents
the slowest rise since 2000. The slowdown was driven by weaker property
investment, according to the National Bureau of Statistics.

Industrial output was also weaker than expected, rising by 6.1pc in the year
to August compared with expectations for a 6.4pc increase.

Economists said Sunday’s figures provided further evidence that the world’s
second largest economy is cooling.

Zhou Hao, an economist at Commerzbank (Xetra: CBK100 – news) , said growth figures for the third
quarter, released next month, were likely to show that the Chinese economy
expanded at an annual rate of less than 7pc.

This would represent the weakest quarter of growth since the first three
months of 2009, when the economy grew by 6.2pc.

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Mr Zhou described the economy as “very weak” and said it was likely
that the government would introduce more measures to stimulate lending as
policymakers try to steer China away from its reliance on investment led
growth.

“Overall, the economy is very weak and the central bank may have to
continue cutting interest rates and banks’ reserve requirement,” he
said.

Fears over the health of China’s economy triggered
a global stock market sell-off last month , prompting speculation that
central banks in the US and UK could delay raising interest rates. Data on
Sunday showed Chinese banks saw net capital outflows of $109bn in the first
quarter of 2015.

China is targeting growth of “around 7pc” this year. However, the
International Monetary Fund expects the country to grow by 6.8pc this year
and 6.3pc in 2016.

Li Keqiang, China’s premier, insisted last week that the country’s
growth rate remained in a “proper range” and that recent stock
market “fluctuations” would not change the country’s pace or
direction of reforms.

In more positive news, separate data on Sunday showed retail sales rose by
10.8pc in the year to August, beating July’s 10.5pc rise.

China set out guidance on reforming the country’s state-owned enterprises
(SOEs) over the weekend. Xinhua, the country’s official news agency, said
the measures included the introduction of “mixed ownership” of
companies to improve corporate governance.

China economy: growth target in doubt as investment and factory output stutters