China’s economy hints at improvement amid consumer gloom

Better infrastructure investment and industrial production signal that govt stimulus finally passing through into real economy


BEIJING • China’s economy showed tentative signs of stabilisation in October with infrastructure investment and industrial production picking up, even as weak retail sales underscored strong downward pressure on output.

Industrial production gained a better than expected 5.9% from a year earlier, and fixed-asset investment rose 5.7% in the 10 months through October, exceeding an estimate of 5.5%. Those readings signal that government stimulus aimed at spurring infrastructure investment is finally passing through into the real economy.

At the same time, consumers are still in a downbeat mood, with a slowing property market worsening the outlook. October retail sales growth slowed to 8.6%, down from a 9.2 expansion a month earlier. New home sales rose at the slowest pace in six months.

On balance, the data provide some respite for policymakers grappling with how to arrest a slowdown that saw third-quarter growth fall to the weakest pace in almost a decade. The broadest measure of credit data reported on Tuesday showed a slump last month amid slower government debt sales, suggesting more stimulus may be on the way.

“China’s economy continues to grapple with stiff headwinds,” said Frederic Neumann, co-head of Asian economics research at HSBC Holdings plc in Hong Kong. “More stimulus will be needed in coming months to prevent a sharper deceleration in overall growth and to prop up household spending and private investment in particular.”

Leading drivers of the rebound were investment in environmental protection and cleanup, and road transportation projects, which quickened noticeably in October, said Liu Aihua, spokeswoman for the National Bureau of Statistics, at a briefing in Beijing yesterday. Some infrastructure projects resumed construction, and some major hydro power, transportation and energy projects have sped up, which showed that support policies are starting to have an effect, she said.

The 3.7% expansion in infrastructure investment, up from 3.3% a month earlier, showed that the recovery is still at a low level and that there’s a need to beef up support via policy, funding and also implementation, said Liu.

“While the broad stabilisation in October activity growth is a relief, weak credit data suggest the economy will continue to search for a bottom in the coming months. We think there will be stronger policy support,” said Chang Shu and Justin Jimenez of Bloomberg Economics.

The acceleration in industrial output expansion in October was driven by basic materials. Cement production jumped 13.1% from a year earlier, marking the fastest pace of growth since March 2016. Production of pig iron and steel products logged the biggest gains in five years, while growth of coal and coke output also saw a sharp acceleration.

Production of items more oriented towards manufacturing, on the other hand, did not fare so well. Output of metal-cutting machine tools plunged 9.8% from a year earlier, marking the worst decline in almost three years, while production of integrated circuits fell 7.3%, marking the worst reading on record in more than five years of data.

“Fiscal stimulus money is finally being spent on infrastructure, which pushed up fixed-asset investment growth,” said Iris Pang, Greater China economist with ING Bank NV in Hong Kong. “Front loading of exports supports manufacturing, which explains higher industrial production growth.” — Bloomberg