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Abu Dhabi, UAEFriday 14 December 2018

China industrial output hits brakes

Government efforts to rein in debt weighs on demand and economic activity

Men work at a construction site in Beijing. China's industrial output fell in July. Thomas Peter / Reuters
Men work at a construction site in Beijing. China's industrial output fell in July. Thomas Peter / Reuters

China's industrial output, a key engine of growth, slowed sharply in July as government efforts to rein in debt weighed on demand and economic activity, official data showed on Monday.

The figures come as the authorities have sought to tighten regulations to tame debt as well as reduce excess capacity left over from huge government-backed infrastructure spending at the height of the global financial crisis.

Output by Chinese factories and workshops grew by a lower-than-expected 6.4 per cent compared to the same month last year, the national statistics bureau said.

Economists surveyed by Bloomberg News had expected growth of 7.1 per cent for July after industrial production expanded by 7.6 per cent in June.

Retail sales, meanwhile, slowed slightly to 10.4 per cent last month, compared to 11 per cent in June, while fixed asset investment posted 8.3 per cent growth in the January-July period - both slightly below expectations.

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"In general, the national economy was generally steady in July with continued positive momentum and deepening structural reform," said the national statistics bureau spokesman Mao Shengyong.

"But we also see that the international circumstance is still complicated and fluid, domestic structural conflicts still stand out, and there are still a lot of hidden concerns."

Mao said industrial production was affected by the weather - high temperatures and floods - and efforts in some regions to speed up the reduction of excess capacity that does not meet environmental rules.

Economic growth could slow by up to 0.2 percentage points in the second half of the year, Mr Mao said.

While China has posted better than expected second quarter growth of 6.9 per cent, economic analysts have warned that the momentum will not last as authorities clamp down on debt.

Property development investment eased between January and July, signalling that the government's tightening policies "have finally trickled down through the economy," according to ANZ Research in Hong Kong.

Julian Evans-Pritchard, China economist at Capital Economics, said Monday's figures provided "mixed signals" as growth in electricity and steel output accelerated while production of consumer goods and most other commodities slowed.

"The upshot is that both foreign and domestic demand appear to have softened at the start of [the third quarter]," Mr Evans-Pritchard said.

"A few sectors, such as steel, seem to have defied this slowdown in economic activity. But the strength in these areas likely won't last given that policy tightening is set to further weigh on infrastructure and property investment in coming months," he said.

But Betty Rui Wang, a senior China economist at ANZ, said the slowdown is likely to be temporary as the bad weather was partly to blame for July's industrial output.

"We expect a rebound in the upcoming months," she said.

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China's economy faces another looming challenge as the US president Donald Trump was due to sign on Monday a memorandum to launch an investigation into the Asian giant's intellectual property practices.

Trump will direct US trade representative Robert Lighthizer to determine whether any Chinese laws, policies or practices discriminate against or harm American innovators and technology companies, US officials said.

The officials, who spoke on condition of anonymity, bluntly accused China of "stealing our intellectual property" - long a concern of Western companies seeking a share of the enormous Chinese market.

Responding to the looming probe, China's foreign ministry said on Monday: "Fighting a trade war has no future. There will be no winner, and everybody will lose."