A worker produces solar vacuum tubes at the Himin Solar Energy Group factory in Dezhou, Shandong province, China (Photographer: Nelson Ching/Bloomberg)  

China’s Economy Moderates as Retail, Factories, Investment Slow

(Bloomberg) -- China’s economic expansion dialed back a notch in October, as a campaign to manage credit risks took hold and the Communist Party signaled a less stringent approach to hitting growth targets.

Key Points

  • Industrial output rose 6.2 percent from a year earlier in October, versus a median projection of 6.3 percent and September’s 6.6 percent
  • Retail sales expanded 10 percent from a year earlier, versus an estimated 10.5 percent and 10.3 percent the prior month. That’s the slowest pace in a year
  • Fixed-asset investment excluding rural households rose 7.3 percent in the first 10 months of the year over the same period in 2016, matching economists’ forecasts
  • Chinese government bonds extended their decline Tuesday, reflecting concern over Beijing’s deleveraging campaign, with 10-year yields hitting 4 percent for the first time since 2014
China’s Economy Moderates as Retail, Factories, Investment Slow

Big Picture

China has signaled increasing focus on the quality of economic expansion rather than the pace of it at the twice-a-decade Party Congress last month, which means further stimulus is unlikely. Stringent air pollution curbs have also hit factory production and a slowdown in credit may weigh on the economy in the fourth quarter. Still, the world’s second-largest economy is on track for its first full-year acceleration in seven years.

Economist Takeaways

"Today’s data look a little slower because we had better readings in September, but it doesn’t indicate the economy’s going down," said Gao Yuwei, a researcher at Bank of China Ltd.’s Institute of International Finance in Beijing. "China will end the year with a good performance."

"There’s an obvious shift toward defending against risks and cutting leverage after the Party Congress," said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong. "We’ve come to a turning point in economic policies."

"China still intends to strike a balance between growth, debt and leveraging," said Zhou Hao, an economist at Commerzbank AG in Singapore. "That said, we need to prepare for some downside bias for the trade and activity data in the coming months."

"If you look at the global economy, we’re forecasting higher growth into 2018 from this year, so China export demand will continue to be supported," Jian Chang, chief China economist at Barclays Plc in Hong Kong, said in a Bloomberg Television interview. "There’s real reason to expect economic growth will remain solid next year."

Bloomberg Economics

"After a year in which policy makers have been able to begin addressing financial risks without sacrificing too much on growth, trade-offs are going to start getting sharper," Tom Orlik and Fielding Chen, researchers at Bloomberg Economics, wrote in a report. "Policy makers are unwilling to take a major hit on growth, and so use of monetary policy to advance financial de-risking will be limited."

The Bloomberg Economics China monthly economic growth estimate slowed to 6.99 percent in October from 7.19 percent the prior month. The tracker is down from a four-year high of 7.73 percent in June.

The Details

  • Private fixed-asset investment in petroleum and natural gas dropped 22.3 percent in the first 10 months from the same period a year earlier
  • Private fixed investment in railway transportation fell 58.6 percent on year in Jan.-Oct.
  • Fixed investment in ferrous metals and non-ferrous metals decreased 10.2 percent and 4.6 percent respectively in the first ten months from a year ago
  • The surveyed jobless rate in 31 cities remained below 5 percent in October for an eighth straight month, statistics bureau spokeswoman Liu Aihua said at briefing Tuesday

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