New Data Suggest a Pause in China’s Slowdown
HONG KONG — China’s economy faces major structural challenges in the coming years, but for now, the slowdown of the recent past may have bottomed out.
A new batch of economic data released Friday provided additional signs of buoyancy in an economy that has been weighed down by lackluster international demand. The Chinese government has also taken a tough-love approach, eager to wean the country from its reliance on exports and cheap credit.
Industrial output growth, which had been languishing around 9 percent for the past few months, jumped to 9.7 percent in July, the National Bureau of Statistics reported. The figure easily beat expectations for a rise of 9 percent, and helped support tentative signs that conditions in the country’s manufacturing sector were starting to show a moderate improvement.
Retail sales grew 13.2 percent from a year earlier, slightly less than the 13.5 percent that analysts polled by Reuters had expected, but in line with the performance of the past few months.
And investment in fixed assets, like buildings and machinery, in urban areas also was in line with expectations, growing 20.1 percent in the first seven months of this year.
Together with unexpectedly solid import and export data released Thursday, this week’s data appeared to show that the Chinese economy has stabilized, at least for now, and prompted some analysts to project a modest pickup in the coming months.
‘'The better-than-expected July activity data has largely dampened the concern of a hard landing of China’s economy,'’ economists at Australia and New Zealand Banking Group wrote in a note. It suggests that China’s economy ‘'is bottoming out.'’
China had been gradually losing steam for many months as it left behind the supercharged growth that turned it into the world’s second-largest economy, after the United States. Economic growth is likely to come in at about 7.5 percent this year, a far cry from the double-digit annual increases the country enjoyed for much of the past three decades.
Still, the data for July appeared to indicate that some of the recent drags on growth have eased.
Export demand from the West has improved as the United States and other economies have gained momentum. And domestically, the authorities in Beijing have clarified in recent weeks that while they are prepared to tolerate slower growth, they will also step in to prevent growth from slowing too rapidly.
Beijing has also announced a string of small-scale measures aimed at propping up activity — tax cuts for small businesses, for example, and measures aimed at speeding up railroad construction in inland and poor areas.
The improved policy clarity and support measures appear to have encouraged the increased activity, especially in the private sector, said Stephen Schwartz, chief economist for Asia at the Spanish bank BBVA in Hong Kong.
The latest reports on Friday “gives us more confidence in our forecast that growth will stabilize in the third quarter, and pick up gradually in the fourth quarter,” Mr. Schwartz said. However, like many other analysts, he said that the outlook for next year and beyond remained uncertain as China battles with the tough overhauls that are needed as the country tries to shift toward more efficient, balanced and sustainable growth.
Economic turmoil in the West and rising wages at home have undermined the export growth that formed the bedrock of China’s growth for decades. The fact that China’s population is aging and its labor force is shrinking means there is an urgent need to raise labor productivity and reduce the inefficiencies and misallocations of capital that have marred growth for years. And overcapacity, corruption and poor allocation of assets continue to affect growth.
Inflation figures released Friday underlined the challenges facing many industries. While consumer price inflation remained muted in July, at 2.7 percent, the price of goods as they leave the factory gate fell 2.3 percent from a year ago, continuing a decline that has lasted for more than a year.
Beijing has sought to rein in credit in a bid to tackle the flow of easy money that fueled growth in recent years, but that has generated worries about asset quality and potentially destabilizing defaults further down the line.
These challenges will weigh on China for years, prompting some analysts to warn — despite the apparent stabilization in July — that growth will slow to well below the current official target of 7.5 percent.
‘'While we believe the government could delay sub-7 percent growth into 2014, we do not believe it can be avoided,'’ Zhang Zhiwei, China economist at Nomura, wrote in a note, adding that he believed the government was likely to cut its growth target for next year to 7 percent.
‘'Leverage in the economy remains high, and many industries continue to face overcapacity problems,'’ Mr. Zhang said. ‘'The resolution of these problems will inevitably require a period of constructive destruction — expect some bankruptcy cases.'’