The slowdown in China is intensifying; growth in industrial production drops to 17-and-a-half year low

BEIJING (Reuters) – China's economy slowed in August with record-breaking industrial output growth for the past 17 and a half years as the US trade war and the United States were struggling.

Retail and investment figures also deteriorated, data released Monday said, bolstering the view that China was likely to lower key rates this week for the first time since. more than three years, in order to avoid a more pronounced slowdown in activity.

Despite a series of measures to boost growth since last year, the world's second largest economy has not yet regained its stability, and analysts believe that Beijing must deploy more stimulus measures to avoid a further slowdown. Mark.

Unexpectedly, growth in industrial production slowed to 4.4% in August compared to the same period of the previous year, its slowest pace since February 2002 and its decline compared with 4 , 8% in July. Analysts polled by Reuters had predicted a rise to 5.2%.

In particular, the value of industrial exports delivered fell 4.3% year-on-year, the first monthly decline in at least two years, Reuters reports, reflecting the burden that the growing Sino-US trade war is Chinese manufacturers.

The long trade war experienced a dramatic escalation last month. President Donald Trump has announced new tariffs on Chinese products as of September 1, and China has allowed its currency to depreciate sharply a few days later.

After Beijing retaliated with retaliatory tariffs, Trump said existing taxes would also increase in the coming months, in October and December.

While both sides are about to resume face-to-face talks in early October, most analysts do not expect a lasting trade deal, or even a significant de-escalation, anytime soon.

Prime Minister Li Keqiang said in an interview published Monday before the release of the data that it was "very difficult" for the economy to grow at 6% or more and that she was facing a "downward pressure".

Traders are expecting a reduction in the central bank's medium-term credit facility (MLF) rate as early as Tuesday, which would pave the way for a reduction in the new Loan Reference Rate (LPR) later on during the week.

Several analysts said in recent weeks that China's economic growth was already testing the lowest goal of the Beijing-wide goal, which was about 6 to 6.5 times. %, which should lead to more flexibility. Growth in the second quarter fell to 6.2%, the lowest in nearly 30 years.

"The main disadvantage is that the authorities are not increasing the political support enough," said Louis Kuijs, director of Asia Asia Division at Oxford Economics.

Fears over rising debt risks appear to limit stimulus, as the Central Bank of China (PBOC) needs to ease monetary policy and expect to be more moderate than the US Federal Reserve or the Bank European Central Office.

Ting Lu, chief economist for China at Nomura, wrote in a note, after the data released, that a reduction in the MLF rate by about 10 basis points on Tuesday had become more likely.

OTHER DATA ALSO MISS EXPECTATIONS

Lu de Nomura predicted that industrial production in September would be further reduced by an anti-pollution campaign before and during the first anniversary of the founding of the People's Republic of China on October 1.

Sluggish data on activity in August added to signs of widespread economic weakness, as a result of weak trade and credit reports last week.

Retail sales exceeded expectations as growth slowed from 7.6% in July to 7.5%. Analysts had anticipated a slight rebound to 7.9%.

Auto sales fell throughout the year, prompting the statistics bureau to report a new reading of consumption recently. Excluding vehicles, retail sales increased 9.3% year-on-year.

Capital investments also disappointed. It increased 5.5% for the first eight months of the year compared to the same period in 2018, down from 5.7% between January and July. Analysts were expecting 5.6%.

Industrial investment appeared to be the biggest drag, as investment growth in the mining and manufacturing sectors slowed in the first eight months. But investment in infrastructure – a key driver of growth – climbed to 4.2% in the first eight months of the year, compared to 3.8% in January-July.

The real estate sector also resisted in August to remain one of the few positive points, real estate investment having recorded the strongest growth in four months, while sales reached their highest level in over a year.

Analysts were surprised by the weak growth in construction at the beginning of the year, with some citing the deterioration in local public finances. The Chinese state planner announced last month that it will ease capital requirements for infrastructure projects in the second half of this year.

Data released last week showed that producer prices fell at their fastest pace in three years.

This followed a factory survey which showed that activity had declined for the fourth consecutive month as the trade war continued.

Earlier this month, the PBOC reduced the amount of cash that banks must keep in reserve for the seventh reduction since the beginning of last year in order to increase the funds available for loans.

"The PBOC's RRR cuts are not enough to ensure growth above 6.0% this year," ANZ analysts said. "In order to reduce financing costs, the People's Bank of China will have to lower the free market transaction (OMO) rate or the medium-term loan facility (MLF) rate in the fourth quarter, in our opinion. "