On Wednesday, data from China’s National Bureau of Statistics showed that in July the country’s growth in terms of industrial output touched its 17-year low nadir, a pointer to growing cracks in its economy which comes at a time when its trade war with the United States has just intensified.
While its industrial output grew by 4.8% in July, analysts had forecast a growth of 5.8% – from June’s 6.3% growth. With China showing a weak unacceptable response to U.S. negotiators, Washington has raised tariffs on a large chunk of its Chinese imports.
Despite China’s best efforts to boost economic growth through fiscal stimulus measures, data shows, China’s domestic market continues to be sluggish; factory surveys also point to a gloomy future. Beijing will have to roll out a lot more fiscal stimulus to support its weakening economy.
Although retail sales rose by 7.6% in July, they were still down compared to analysts’ forecast of 9.8%, which underscores a growing pessimistic mood in the Chinese economy.
The same trend is mirrored also in fixed-asset investments, which rose by 5.7% in the January to July period but lagged behind analysts’ expectations of 5.8%.
Sector-wise investment readings showed a significant loss of momentum in key sectors at the beginning of the third quarter.
Private sector fixed-asset investment, which accounts for about 60% of the country’s total investment, grew 5.4% in January-July, compared with a 5.7% rise in the first sixth months of 2019.
Property investment grew 10.6% in the first seven months of the 2019 on-year, slowing from 10.9% in Jan-June. This sector has been a rare bright spot in China’s economy.
With the Chinese economy running out of steam, business confidence, which weighs on investments continues to remain shaky. Investors fear a costly and long drawn out war with the United States.
U.S. trade action is achieving its results with many companies relocating supply chains outside China. In late July, China’s industry ministry had said, China would need “arduous efforts” to achieve 2019’s industrial output growth target of 5.5% to 6.0%.
Analysts believe, Beijing will have to come out with more stimulus measures in order to stabilize growth and prevent a deeper downturn.
If Beijing were to cut its interest rates it could trigger a sharp increase in its debt.
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