China factory growth slips, government spending eyed

Sun Sep 9, 2012 11:29am EDT
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By Langi Chiang and Nick Edwards

BEIJING (Reuters) - China's factories ran at their slowest rate for 39 months in August while a double-digit rise in fixed asset investment showed that infrastructure spending remained key to economic growth.

Industrial output growth slowed to 8.9 percent year on year, the weakest since May 2009 and below market forecasts of a 9.1 percent rise, data from China's National Bureau of Statistics (NBS) showed on Sunday.

Fixed asset investment, which accounted for half of China's net economic growth in the first-half of 2012, grew 20.2 percent between January and August compared to the year earlier period, a touch below expectations for a 20.4 percent expansion.

Retail sales rose 13.2 percent last month from a year ago, in line with forecasts in a Reuters poll, though the trend of spending so far in 2012 has been tracking slightly lower.

The data is likely to reinforce market expectations that China will further adjust policies soon to lift an economy mired in its softest period of growth in three years.

"The headline numbers do not look very good and they suggest a pretty challenging outlook for policymakers," Zhang Zhiwei, chief China economist at Nomura in Hong Kong said.

China's vast factory sector has been badly hit by slowing new orders. Surveys of purchasing managers earlier this month showed concerns growing about new business, suggesting that manufacturers will run inventories down further before they can begin to turn production up again.

Data earlier on Sunday showed the annual rate of consumer inflation ticked up to 2.0 percent in August from July's 30-month low of 1.8 percent, suggesting that room to ease monetary policy to shore up growth may be narrowing.   Continued...

Highrise residential buildings are seen behind container terminals at Hong Kong's Kwai Chung district September 7, 2012. REUTERS/Bobby Yip