China retail sales growth slows in July, misses expectations

China's retail sales growth slowed sharply in July, government statistics showed Friday, missing expectations in a disappointing sign for the world's second-largest economy with authorities looking to consumer demand to push growth.

Retail sales rose 10.2 percent in the month, the National Bureau of Statistics (NBS) said, a marked slowdown from June's 10.6 percent increase and below the median forecast of 10.5 percent in a Bloomberg News poll of economists.

Beijing is looking to retool the economy from a reliance on investment spending and exports to one driven more by consumer demand, but the transition is proving bumpy and gross domestic product growth is slowing.

China is a key driver of the world economy but grew at its slowest rate in a quarter of a century last year, and has decelerated further since then.

Industrial output in the Asian giant rose 6.0 percent in July over the year before, the NBS said, while fixed asset investment (FAI), a gauge of infrastructure spending, rose 8.1 percent in the first seven months of the year. 
Those figures also missed expectations of 6.2 percent and 8.9 percent respectively.

Analysts were disappointed. Zhao Yang of Nomura called the figures an "across-the-board slowdown" that showed more weakness than expected. The investment figures were consistent with a deep contraction in imports that "points to sluggish domestic investment demand".

"Overall, we think growth momentum continued to lose steam," he added. 

Looking ahead, factory output will face further downward pressures due to efforts to cut overcapacity, analysts with ANZ Research said in a note. 

Industrial production "may further dampen" this quarter, they added, as a result of flooding around the Yangtze River and suspended factory production in Zhejiang province, one of China's most developed areas, due to a forthcoming G20 summit in Hangzhou. 

- 'Unswervingly advance' -

The NBS said in a statement that China's economy was "basically steady" in July but said that "serious disasters" from flooding and high temperatures in some parts of the country caused some indicators to slow.

"However, overall economic development kept performing in a proper range with steady pace, as a result of stable employment and prices, deepened supply-side structural reform and accumulated new impetus," it said.
China should "unswervingly advance" supply-side structural reform and expand aggregate demand, it added.

NBS spokesman Sheng Laiyun said it was "reasonable" for FAI growth to fall long-term as the economy shifts away from traditional heavy industries toward the service sector, which does not require as intensive investment. 

Beijing has listed reducing overcapacity and excess inventory and cutting down borrowing as top priorities, with the country's ailing steel industry -- accused by US and European rivals of dumping on world markets -- a key target.

Authorities have set a goal to cut 45 million tonnes of annual steel capacity this year, with the official Communist mouthpiece People's Daily this week saying around 21 million tonnes had been eliminated by July.

But actual production of the metal was up 2.6 percent year-on-year in July to 66.81 million tonnes, the NBS figures showed.
The disappointing investment figures raise doubts over the effectiveness of policy easing, Julian Evans-Pritchard of Capital Economics said in a note.

"While looser monetary conditions appear to be supporting current conditions and have clearly boosted credit growth, the impact of this step-up in lending on investment has underwhelmed," he said.

New bank loans plunged to 463.6 billion yuan ($69.7 billion) in July, the central bank said Friday, their lowest level in two years according to Bloomberg and a dramatic drop from nearly 1.4 trillion the previous month, when borrowers took advantage of loosened lending standards. 

The fall suggested a desire by Beijing to rein in financial risks as the economy showed signs of stabilising.  

Looking ahead, China's growth this year will face pressure from cooling property construction and weak corporate investment, Louis Kuijs of Oxford Economics said in a note. 

"The government will have to rely on stimulus if it wants to meet the GDP growth targets set earlier this year," he added. 

But investors shrugged off the data, with the benchmark Shanghai Composite Index closing up more than one percent on Friday as investors loaded up on property shares.

Source: AFP