Chinese industrial production drops to 17-year low

Chinese industrial production fell to a 17-year low in August, according to figures released on Monday, while retail sales and fixed asset investment also weakened.

Industrial production growth slowed to 4.4% year-on-year in August from 4.8% in July, falling short of expectations for a 5.2% increase.

Pantheon Macroeconomics said: "The August weakening was visible across manufacturing, and electric heat and power, but it was clearest in mining and quarrying, lending credence to official attempts to curb upstream output to deal with falling commodity prices, excepting iron ore.

"Production of cement points to ongoing weakness in the sector, while growth in the production of construction-related metals remains relatively strong, but continues to slow at the margin. Autos were a bright spot, recovering from recently lows, though production levels remain anaemic."

Meanwhile, retail sales growth slowed to 7.5% in August from 7.6% the month before, missing expectations of 7.9% growth.

Fixed-asset investment expanded at 5.5% in August, down from 5.7% in July and below expectations of 5.6% growth. The slowdown was driven by the private sector, where growth eased back to 4.9% from 5.4%.

Martin Rasmussen, China economist at Capital Economics, said: "The continued slowdown in activity growth last month suggests that the cyclical moderation we have been anticipating is materialising. And even though fiscal policy is turning more supportive, we think that overall construction activity will remain under pressure in the coming quarters as the recent boom in property development unwinds.

"What’s more, a weaker renminbi is unlikely to fully offset the increasing headwinds from US tariffs and cooling global demand, and we expect a further slowdown in economic activity over the coming year as a result."

Pantheon said: "Overall, these three reports will be a blow to the authorities. Admittedly the data are volatile, but officials are clinging on to the notion that previous stimulus efforts will feed through. That’s fair enough, but these figures raise the case for doing more in the meantime.

"We continue to think that the People's Bank of China will cut the rate corridor by 20bp this month, while local governments will be given more rein to borrow."