China August factory growth slows to near six-year low, calls grow for more stimulus

Sat Sep 13, 2014 5:40am EDT
 
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By Kevin Yao

BEIJING (Reuters) - China's factory output grew at the weakest pace in nearly six years in August while growth in other key sectors also cooled, raising fears the world's second-largest economy may be at risk of a sharp slowdown unless Beijing takes fresh stimulus measures.

The output data, combined with weaker readings in retail sales, investment and imports, pointed to a further loss of momentum as the cooling housing market increasingly drags on other sectors from cement to steel and saps consumer confidence.

Industrial output rose 6.9 percent in August from a year earlier - the lowest since 2008 when the economy was buffeted by the global financial crisis - compared with expectations for 8.8 percent and slowing sharply from 9.0 percent in July.

"The August data may point to a hard landing. The extent of the growth slowdown in the third quarter won't be small," said Xu Gao, chief economist at Everbright Securities in Beijing.

"The chances of cutting interest rates and bank reserve requirements have increased. I think they are more likely to cut interest rates."

Some analysts believe annual economic growth may be sliding towards 7 percent in the third quarter, putting the government's full-year target of around 7.5 percent in jeopardy unless it takes more aggressive action. Experts reckon output growth of around 9 percent would be needed to attain such a goal.

"Short of outright policy easing, China will likely miss the 7.5 percent growth target this year, and a sharp economic slowdown will endanger the undergoing structural reforms," Liu Li-Gang and Zhou Hao at ANZ wrote in a note.

"As such, we reckon that Chinese authorities should further relax monetary policy as soon as possible to prevent growth momentum from decelerating further."   Continued...

 
An employee guides a crane as it transports a roll of steel sheet, at a factory in Handan, Hebei province August 13, 2014.  REUTERS/Stringer