Chinese industrial production at slowest pace in six years

CHINA'S INDUSTRIAL production grew at the slowest pace in six years on weaker export demand and factory shut-downs for the Olympics.

This combined with news of Japan's slowest economic growth since 2001 to paint a downbeat outlook for Asian growth.

Chinese output grew by a lower-than-expected 12.8 per cent in August from a year earlier, the statistics bureau said.

This follows a gain of 14.7 per cent in July.

News of slower growth in the amount of goods coming out of China's factory gates adds to weaker inflation and trade data to show that even the simmering Chinese economy, the world's fourth largest, is not immune to the global slowdown.

However, Chinese growth is being underpinned by strong domestic retail sales, which grew 23.2 per cent last month.

Weaker growth figures from the economic powerhouse came hard on the heels of bad news from Japan.

It showed that growth in Asia's biggest economy, and the second largest globally, had contracted by 0.7 per cent in the second quarter.

This is the country's worst performance in seven years as it struggled with high raw material costs, slowing exports and weak capital spending.

The Japanese economy is expected to return to positive growth in the third quarter, but any recovery looks set to be unspectacular.

Exports, a crucial pillar of the Japanese economy, were also down 2.5 per cent.

A report by Merrill Lynch expects Asia's economies to register slower-than-expected growth because of weaker demand for goods produced in Asia from euro zone, US and Japanese markets.

The report forecast Chinese growth of 10 per cent this year and 9.2 per cent next year.

This is a percentage point down on its previous forecast, and this would continue to slow to 8 per cent by 2013.