China's economy worsens in July, industrial growth at 17-year low as trade war escalates

China's economy worsens in July, industrial growth at 17-year low as trade war escalates

Output at China's factories is being hit by the trade war with the US and a slowing global
Output at China's factories is being hit by the trade war with the US and a slowing global economy AFP/STR

BEIJING: China's economy showed further signs of strain in July with output at its factories falling to its lowest level in 17 years, while investment and retail sales slowed, official data showed Wednesday (Aug 14).

The figures are the latest to highlight how the world's second-largest economy is being battered by an escalating trade war with the United States and slowing global demand.

Industrial output increased 4.8 per cent year-on-year in July, down from 6.3 per cent in June and marking the weakest pace since 2002. It was also well below the 6 per cent forecast by economists in a Bloomberg News survey.

"Given the complicated and grave external environment and the mounting downward pressure on the economy at home, the foundation for sustainable and healthy growth of the economy still needs to be consolidated," said Liu Aihua, a spokeswoman for the National Statistics Bureau, which released the data.

The data also showed China's billion-strong army of consumers were showing signs of becoming more frugal.

Retail sales, which have long been a bright spot for the economy, slowed to a 7.6 per cent rise last month, sharply down from 9.8 per cent in June.

The news highlights the battle China's leaders have in trying to navigate the country's economy from exports and government investment to one driven by domestic consumption.

Infrastructure investment, which Beijing has been counting on to stabilise the economy, also dropped back, as did property investment, which has been a rare bright spot despite worries of potential housing bubbles.

Crude steel output fell for a second straight month, while production of motor vehicles continued to fall by double digits. Hi-tech manufacturing output rose by a slower 6.6 per cent, and the country's power output edged up just 0.6 per cent.

"China's economy needs more stimulus because the headwinds are pretty strong and today's data is much weaker than consensus," said Larry Hu, head of Greater China economics at Macquarie Group in Hong Kong.

"The economy is going to continue to slow down. At a certain point, policymakers will have to step up stimulus to support infrastructure and property. I think it could happen by the end of this year."

INVESTMENT, RETAIL SALES GROWTH COOLS

China's economic growth cooled to a near 30-year low of 6.2 per cent in the second quarter, and business confidence has remained shaky, weighing on investment.

While officials have cautioned it would take time for higher infrastructure spending to kick in, construction growth has been more subdued than expected.

Fixed-asset investment rose 5.7 per cent in January-July from the same period last year, lagging expectations of a 5.8 per cent gain and dipping from the previous reading.

But readings by sector showed a more marked loss of momentum in critical areas at the start of the third quarter.

Infrastructure investment rose 3.8 per cent in the first seven months from a year earlier, slowing from 4.1 per cent in the first half despite massive local government bond issuance, mainly to fund road and rail projects and other civic works.

ESCALATING TRADE WAR

The economic malaise makes it more difficult for President Xi Jinping to fight back forcefully against Washington - which is using tariffs as leverage to try to force Beijing into opening up its markets.

Recent months have been marked by a sudden escalation in the year-long S.-China trade war that has raised risks for both economies and sparked fears of a global recession.

A brief ceasefire was shattered earlier this month after US President Donald Trump vowed to impose a 10 per cent tariff on more Chinese goods from Sep 1.

China let its yuan currency slide to an 11-year low days later, prompting the US Treasury Department to label Beijing a currency manipulator.

Some relief came on Tuesday, however, after Trump said he would delay duties on some Chinese imports including cellphones and other consumer goods, in an apparent effort to blunt tariffs' impact on US holiday sales.

Still, new tariffs will go into effect next month on about half of Washington's US$300 billion target list of Chinese goods, and analysts say the chance of any durable trade deal after the recent escalations has sharply receded.

Source: Agencies/hm

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