China’s industrial engine slowed to new 17-year low in August, even before new US trade war tariffs took effect

South China Morning Post 發布於 2019年09月16日04:09 • Finbarr Bermingham, Orange Wang,
  • Industrial production, which measures industrial output grew at 4.4 per cent last month, down from 4.8 per cent in July and the lowest growth since February 2002
  • Retail sales, a key metric of consumption in the world’s most populous nation, grew by 7.5 per cent, below analysts’ forecasts
A batch of data released by the National Bureau of Statistics on Monday showed that retail sales, a key metric of consumption in the world’s most populous nation, grew by 7.5 per cent, below analysts’ forecasts of 8.0 per cent expansion, and a decline on July’s 7.6 per cent growth. Photo: Bloomberg

China's industrial engine continued to stutter in August, with a key gauge of the country's manufacturing output slumping to a new 17-year low, in the last month before the United States imposed new tariffs on Chinese-made goods.

Industrial production, which measures China's industrial output, including manufacturing, mining and utilities, grew at 4.4 per cent last month, down from 4.8 per cent in July, which in itself was the lowest rate since February 2002. This was well below a poll of analysts taken by Bloomberg that had expected growth of 5.2 per cent.

A batch of data released by the National Bureau of Statistics (NBS) on Monday also showed that retail sales, a key metric of consumption in the world's most populous nation, grew by 7.5 per cent, also belowanalysts' forecasts of 7.9 per cent expansion. This was a slight decline on July's 7.6 per cent growth and the lowest figure since April.

Fixed asset investment, the level of spend on physical assets, including real estate and infrastructure, grew by 5.5 per cent in the first eight months of 2019. This was down from 5.7 per cent in July, and " again " below analysts' expectations. The Bloomberg poll had forecast no change. This was the lowest growth in fixed asset investment since August 2018, when it was 5.3 per cent.

Within industrial production, the NBS figures showed slumps in both manufacturing and mining. Manufacturing grew by 4.3 per cent in August, down from 4.4 per cent in July and 5.2 per cent in June. Mining output, meanwhile, grew by 3.7 per cent last month, down from 6.6 per cent last month.

The continued slump in China's industrial sectors came in the last month before US tariffs on US$300 billion of Chinese goods rose to 15 per cent on September 1. There is scant evidence of front-loading in the data, which was telegraphed by weak trade numbers for August released last week and weak sentiment among China's factory owners.

China's exports fell by 1 per cent in August, while imports fell by 5.6 per cent. Imports have fallen in all but one month in 2019 " April " with around 40 per cent of China's overall imports estimated to be raw materials and components used in other goods.

The manufacturing purchasing manager's index " a gauge of sentiment among factory owners " remained negative in August, with expectations of new export orders declining again. Despite the fact that US President Donald Trump announced plans to delay the planned increase of tariffs on US$250 billion of Chinese goods to 30 per cent from October 1 to October 15, most analysts expect this to come in eventually, further pressuring export-oriented manufacturers.

Fixed asset investment growth for the year-to-date had been flat, but in August it declined, despite the government's efforts to funnel money towards infrastructure projects in a bid to boost the economy. Many analysts have pointed out that the major impact of the trade war on both the economies of the US and China to date has been a chilling effect on investment, and August's growth slump is likely to indicate just that.

"Fixed investment expanded at a weaker-than-expected (rate)", said Martin Lynge Rasmussen, China economist at Capital Economics. "This was the result of weakness in property construction and manufacturing overshadowing strong infrastructure spending."

Beijing has taken a number of stimulus steps, including loosening local governments' fundraising restrictions and reducing the amount of cash commercial banks need to hold at the central bank " designed to pump money into the economy in the form of loans.

Yet, this has done little thus far to boost consumption. Retail sales have been on a downward trajectory for the last couple of years, a reflection of many of the issues in China's debt-laden economy that predate the trade war.

Again, the uncertainty that the US-China dispute brings to the table is acting as a dampener on consumption, as can be seen in the unrelenting slump in China's car market. Car sales in China fell by 6.9 per cent in August, marking the 14th successive monthly slump, with individuals and businesses appearing to be holding back on big ticket purchases while the geopolitical situation remains so volatile.

Recent noises from both Beijing and Washington have been more positive with regard the short-term possibility of a trade deal, with China announcing on Friday that it would exempt agricultural goods from the US, including pork and soybeans, from additional tariffs. In the case of pork, China's demand situation means this is viewed in some quarters as necessity, with African swine fever threatening to wipe out more than half of the national herd.

Nonetheless, should it lead to an "interim deal" " in the words used by Trump last week " it could help galvanise sluggish investment and consumption in China, which has been buried by negative data for most of 2019.

Talks will resume in October, when a Chinese delegation led by Vice-Premier Liu He travels to Washington. However, given that many of China's economic issues predate the trade war, this sort of short-term deal may leave analysts to measure their expectations as to its impact on the economy.

"China's economy is undergoing a cyclical economic downturn driven almost entirely by domestic factors. The key drivers of the slowdown are tight financial conditions, thanks to a recent financial derisking campaign, and weak local government investment," said Andrew Polk, the co-founder of economic consultancy Trivium China, in a recent testimony to the US-China Economic and Security Review Commission.

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