China slowdown fears deepen as output weakens

September 9, 2012
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Production at China’s factories, workshops and mines increased 8.9 percent in August compared with the same month last year, the National Bureau of Statistics announced/FILE
Beijing, Sept 9 – China’s industrial output weakened in August to its lowest level in more than three years, official data showed Sunday, in the latest sign of a deepening slowdown in the world’s second-largest economy.

Production at China’s factories, workshops and mines increased 8.9 percent in August compared with the same month last year, the National Bureau of Statistics announced.

That represented a weakening from the 9.2 percent gain recorded in July. The August result was also the worst since a similar increase of 8.9 percent in May of 2009 amid the global economic crisis, according to previous data.

Anxiety over prospects for China’s economy, a key engine of world growth, have been increasing as government efforts to bolster demand through more accommodative monetary policy have shown little sign of working.

China’s economy expanded 7.6 percent in the second quarter through the end of June for its weakest performance in three years, marking the sixth straight quarter of slower growth.

Data in the current third quarter have remained weak as the slack global economy, beset by uncertainty amid Europe’s debt prolonged crisis, dents demand for China’s exports and domestic activity has been sluggish.

Urban fixed asset investments — a key measure of government spending on infrastructure — rose 20.2 percent in the first eight months of 2012 compared with the same period the year before, the bureau also said Sunday.

That figure, however, also suggests the situation worsened in August as it came in less than the 20.4 percent that was recorded for the first seven months of the year through July.

Retail sales, China’s main gauge of consumer spending, were 13.2 percent higher in August year-on-year, the bureau said, marginally better than the 13.1 percent increase recorded in July.

Earlier Sunday, the bureau also announced that China’s inflation rate accelerated slightly in August amid higher costs for food, potentially limiting the government’s ability to enact fresh monetary stimulus measures.

Consumer prices rose 2.0 percent year-on-year as food prices increased 3.4 percent. Inflation stood at 1.8 percent in July.

Chinese authorities have taken steps this year to boost growth by cutting rates twice in quick succession and slashing the amount of funds banks must keep in reserve to boost lending.

Given continued weak figures, analysts have been expecting further monetary loosening steps to fire up growth, though the slight rise in consumer price inflation in August makes another decrease in interest rates less of an option because of the inflationary risks they pose.

“The likelihood of a cut is now clearly smaller than last month,” IHS Global Insight economists Ren Xianfang and Alistair Thornton said in a report, emphasising that higher consumer prices make it harder to “absorb the inflationary pressure” of monetary stimulus.

Rather, they expect the government to use other tools, such as fiscal stimulus, to help bolster the economy.

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