China industrial output drops to 17-year low
Industrial production growth in China fell to a 17-year low in July, according to data released on Wednesday by the National Bureau of Statistics.
Industrial output fell more than expected last month compared to the previous year, down to 4.8% from 6.3% in June and missing expectations of 5.8% growth.
Freya Beamish, chief Asia economist at Pantheon Macroeconomics, said: "Our re-constructed index, formed from the month-on-month data, paints a somewhat rosier picture, suggesting that the headline will correct. But the underlying levels data suggest a still very weak picture of reality.
"The headline slowdown was driven by manufacturing, with electric heat and power production providing some offset. The data also suggest that construction is on shaky ground.
"The July rate is weaker than the financial crisis lows, crushing hopes of a swift economic recovery sown with the bounce in June. These data cast doubt on theories that the Chinese authorities will see any appeal in waiting out Mr. Trump in the trade negotiations."
Meanwhile, fixed asset investment came in at 5.7% growth, slightly undershooting expectations of 5.8%.
Beamish said Pantheon had expected stability, with a slowdown in residential real estate-related investment offset by a continuation of the rebound in tertiary investment, which mainly relates to infrastructure.
"Instead, the weakness was driven by infrastructure, though state-owned investment picked up," she said.
"We’ve continually highlighted that local government funding gaps will need to be addressed if a second half recovery is to take hold. In recent months, it seemed as though local governments had been given the nod, with debt issuance rebounding, despite the looming quota cliff. But these data suggest that the issuance spike hasn’t translated into a sustained pick-up in actual investment.
"These data are dodgy on a month-to-month basis, so we haven’t written off a local government spending resurgence yet. At the same time, we continue to expect the reins to be loosened on local government.
Retail sales in China grew 7.6% in July, down from 9.8% in June and below expectations of 8.6%.
"These data paint a picture of a household sector struggling with deteriorating labour income, and damaged wealth, amid an upswing in CPI inflation. Tepid household demand deposit growth leaves us with concerns that the deteriorating trend is not yet over," said Beamish.