Holiday Period Clouds China Data For October

By Glenn Dyer | More Articles by Glenn Dyer

The final round of China’s economic data for October continued to paint a picture of a sluggish economy, but the week-long national holiday and 70th birthday celebrations at the start of the month were also a contributing factor to the weaker than forecast performance.

According to data from China’s National Bureau of Statistics (NBS), industrial output grew 4.7% in October compared to the same period a year earlier, down from the 5.8% rise in September and below the 5.4% improvement forecast by analysts.

Growth in retail sales also slowed sharply over the year, increasing by 7.2%, down from 7.8% a month earlier. That too was well short of the 7.9% forecast.

Economists wonder if the rapid rise in pork and other food prices might be playing a part in forcing consumers to curtail spending to allow themselves to keep buying pork, which is the main meat protein in China.

Whatever the reason retail sales growth is at the 16-year lows hit last April.

Fixed asset investment was also sluggish growing at an annualised pace of 5.2% in the first 10 months of the year, the weakest on record.

It was under the 5.4% level reported between January to September. Economists were looking for a steady reading of 5.4%.

The main drag was weaker activity in property and infrastructure construction.

Economists said that although it is likely that this weakness reflects the impact of the US-China trade war, there may have been some additional impact from the celebrations of the holiday at the start of the month.

It and the production curbs certainly had an impact on output from the steel, cement and metal industries for example.

Capital Economics believes the trends seen in October could be a sign of things to come.

“Further weakness lurks ahead. Real estate is primed for a further moderation as financing to the sector is being squeezed by a regulatory crackdown,” said Martin Lynge Rasmussen, China economist at the group. “The case for further monetary easing remains intact.”

Private-sector fixed-asset investment, which accounts for 60% of the country’s total investment, grew 4.4% in January-October which was also weaker than expected.

Reuters pointed out that recognising the need to boost investment Wednesday saw China’s State Council said Beijing lower the minimum capital ratio requirement for some infrastructure investment projects.

Other data on Thursday showed China’s property investment growth in the first 10 months of the 2019 slowed year-on-year but both housing sales and new construction starts picked up, even as the government tightened controls to try and prevent any renewed outbreak of real-estate speculation.

All the data supports the move by the People’s Bank of China (PBoC) to cut its main lending rate by 5 basis points in early November – to 3.25% – which will likely be reflected in the benchmark Loan Prime Rate when it is announced on November 20.

The National Australia Bank pointed out that “Compared with policy easing in other countries, this cut was extremely modest, however, the PBoC has scope to cut further and faster if required in the future.”

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.

View more articles by Glenn Dyer →