July China Data Disappoints

By Glenn Dyer | More Articles by Glenn Dyer

More signs that business activity in China is weaker with lower than expected readings for July on investment and retail sales, while industrial output remains moderate.

After OK inflation and a smaller trade surplus because of sharp rise in imports, other data has confirmed that the economy has lost momentum somewhat in the past three months.

But crude steel production hit a new all time monthly high in July, according to the official data, a development at odds with what else is happening in the economy.

That is good news for Australian iron ore and coal exporters like BHP, Tinto Tinto, Fortescue and Whitehaven Coal (see separate story).

But investment growth slowed to a near two-decade low last month, according to data from the country’s National Statistics Bureau, while retail sales slowed sharply to their lowest rate of growth since 2003.

But real estate investment picked up last month from June a sign that the government is maintaining some lending to the most volatile of all sectors in the economy.

The major influence producing the slowing in the pace of activity has been the central government’s crack down on leverage – especially in the financial sector. An online peer to peer investment and lending scandal is continuing to ripple through the economy with losses in the tens of billions of yuan.

China’s deleveraging program continued in July – with new credit issuance falling. In fact theN pointed out that In the first seven months of 2018, new credit issuance contracted by 15% from a year ago.

The Nab says the squeeze on shadow banking has forced banks to bring off-balance sheet items back to their books as well as direct new funding through traditional channels.

But at the same time the NAB pointed out that there had been a large easing in monetary policy in recent weeks – a loosening of around 35 basis points since June to help the economy and busienss cope with the impact of the US trade tariffs, according to some analysts.

"Late last week, the China Banking and Insurance Regulatory Commission stated that it would guide financial institutions to expand financing – particularly to small businesses and infrastructure – noting that banks should make full use of current liquidity and current low funding costs. It is unclear at the moment if this would mean a slowing in, or the end of, deleveraging,” the NAB said.

Industrial output rose 6.0% in July from a year earlier, unchanged from the 6.0% increase in June. Industrial production rose 0.48% in July from June. In June, it rose 0.36% from May.

Crude steel output rose by 7.2% year on year – to a new monthly record of 81.2 million tonnes. For the seven months January-June crude steel output is up 6.3% from the same period of 2017 at 532.85 million tonnes.

China’s January-July crude oil throughput was up 9.2% 350.57 million tonnes (imported and domestic). China’s July coal output fell 2% to 281.5 million tonnes, the since September 2016, according to Reuters (Coal imports rose to more than 29 million tonnes in July). For January-July coal output rose 3.4%to 1.98 billion tonnes

Growth in consumer electronics (including computers, mobile phones and tablets) accelerated to 13.5% yoy (from 10.9% in June)., according to the NAB

Electricity generation jumped 5.9% yoy (slightly down on growth in June) but cement production grew modestly – up by 1.6% from July 2017 and car production eased 0.5% from a year ago.

Fixed-asset investment growth slowed more than expected to 5.5% in January-July. That was the weakest on record going back to early 1996, according to Reuters. Investment had been forecast to grow 6.0% in the first seven months of the year, after being steady in January-June.

Retail sales also missed expectations, with consumers more reluctant to spend. Sales rose 8.8% in July from a year earlier, below the 9% rate in June. The Statistics Bureau said retail sales rose 0.67% in July from June. In June, retail sales rose a revised 0.74% from the previous month.

Reuters pointed out that a bright spot in the data was private sector fixed-asset investment rose 8.8% in January-July, compared with an increase of 8.4% in the first half. Private investment accounts for about 60% of overall investment in China.

Real estate investment rose 13.2% in July from July last year, the fastest monthly pace since October 2016 and higher than June’s 8.4% rise, according to Reuters.

New construction starts jumped 32.4% year on-year in July, the most since late 2014.

The NAB commented that "China’s monthly indicators were generally a little softer in July – below market expectations – but not overly negative. Our expectations for weaker economic growth across the second half of the year remains unchanged – with growth to average 6.6% in 2018, before slowing to 6.25% in 2019 and 6.0% in 2020.”

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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