China July industrial output growth falls to 17-year low as trade war escalates

Data indicates sluggish domestic demand in China

China reported a raft of unexpectedly weak July data on Wednesday, including a surprise drop in industrial output growth to a more than 17-year low, underlining widening economic cracks as the trade war with the United States intensifies.

Industrial output grew 4.8 per cent in July from a year earlier, data from the National Bureau of Statistics showed on Wednesday.

Analysts had forecast industrial output growth would slow to 5.8 per cent, from June’s 6.3 per cent growth, amid weakened demand at home and abroad. The US had sharply raised tariffs on a large share of its Chinese imports in May.

Despite more than a year of growth boosting measures, Wednesday's data showed China's domestic demand remains sluggish, with gloomy July factory surveys, stubbornly soft imports and weaker-than-expected bank lending data released in recent days reinforcing views that Beijing needs roll out more stimulus soon to support the economy.


Retail sales growth was also weaker than the most pessimistic forecast, after a jump in July that many analysts had predicted would be temporary.

Retail sales rose 7.6 per cent in July from a year earlier, compared with 9.8 per cent in June and analysts’ expectations of 8.6 per cent.

China’s economy has been slow to respond to a flurry of support measures rolled out since last year, with growth cooling to a near 30-year low in the second quarter. Business confidence also remains shaky, weighing on investment.

Investors fear a longer and costlier trade war between the world’s two largest economies could trigger a global recession.

Tariff row

Already, the tariff row has hit world trade, investment and corporate profits. It is also pushing some Chinese manufacturers to move capacity to neighbouring countries and rebuild supply chains outside of China.

China’s industry ministry said in late July that the country would need “arduous efforts” to achieve 2019’s industrial output growth target of 5.5 per cent to 6.0 per cent, citing trade protectionism pressures.

Analysts say Beijing will need to deliver more stimulus to prevent a deeper downturn and to help stabilise growth.

That view was reinforced earlier this month when a brief ceasefire in the trade war was shattered after US president Donald Trump vowed to impose a 10 per cent tariff on $300 billion of Chinese imports from September 1st.

Such a move would extend levies to effectively all of the goods China sells to the US. But in an apparent effort to blunt their impact on US holiday sales, Trump on Tuesday delayed duties on some Chinese imports including cellphones, laptops and other consumer goods.

Aggressive action

Sources said recently that more aggressive action such as interest rate cuts are a last resort, as it could fuel a sharper build-up in debt.

Despite prodding from Beijing, several bankers have said they have little appetite to lend to smaller companies due to the uncertain economic outlook, the trade war and a years-long drive to purge risks from the financial system. Some companies also say banks are sharply reducing credit lines. – Reuters