China’s activity data was stronger than expected in November, with factory output growth picking up to a five-month high, signaling that a flurry of stimulus measures from Beijing may have put a floor under a fragile economy.
Still, analysts believe more policy steps are needed to weather nagging headwinds from a cooling property market, risks from high domestic debt levels, and weak global demand as financial markets brace for interest rate rises by the US Federal Reserve, Channel NewsAsia reported.
“Real interest rates are still high due to falling producer prices,” said Wang Jun, senior economist at the China Center for International Economic Exchanges, a Beijing-based think-tank. “It’s still necessary to cut interest rates to support economic growth and combat deflation.”
Factory output grew an annual 6.2% in November, data from the National Bureau of Statistics showed, quickening from October’s 5.6% and beating expectations of 5.6%.
Growth in China’s fixed-asset investment, one of the main drivers of the economy, rose 10.2% in the first 11 months, unchanged from the gain in January-October, and higher than an expected 10.1% rise.
Retail sales grew an annual 11.2% in November–the strongest expansion this year–compared with 11% in October. Analysts had forecast 11.1% growth in November.
“While low base could be the factor driving the headline growth, we still have to acknowledge that China’s data are illustrating signs of stabilization, albeit at a low level,” said Zhao Hao, senior economist at Commerzbank in Singapore.
FDI Inflow Rises
Foreign direct investment into China increased 1.9% year-on-year to 64.9 billion yuan ($10.05 billion) in November. The growth slowed from a 4.2% rise recorded in October, Xinhua News Agency reported.
For the first 11 months, FDI, which excludes investment in the financial sector, stood at 704.3 billion yuan, up 7.9% from the same period last year, it quoted data from the Ministry of Commerce.
It said foreign investment in the service industry rose 18.8%, with the high-tech service sector seeing a jump of 51.7% to $7.23 billion.
High-tech manufacturing attracted $8.54 billion of foreign investment during the January-November period, up 11.7% and accounted for 23.8% of the total FDI in manufacturing.
The news agency said investment from ASEAN, European Union, Hong Kong and Macau continued to grow fast, while from Japan, the United States and Taiwan dropped significantly.
The ministry also noted that more foreign firms invested in China through mergers and acquisitions, which accounted for 14.7% of the total FDI in January-October, up from 5.6% in the same period last year, it added.
Weak Demand, Overcapacity
The world’s second-biggest economy has been hit by weak demand at home and abroad, factory overcapacity and challenges posed by its transition to a consumption-led growth model from one reliant on investments.
With the Fed poised to raise interest rates for the first time in almost a decade at next week’s review, the risk of intensifying capital outflows has added to Beijing’s policy challenge.
Premier Li Keqiang has recently pledged to step up “supply-side” reform to generate new growth engines in the economy while tackling factory overcapacity and so-called zombie firms.
With its trade sector ailing, there are also signs China is ramping up efforts to send more excess production abroad with tax cuts for the export sector.
China’s output of key industrial commodities including coal and steel remained weak in November amid chronic oversupply as slowing construction demand took its toll.
Over the past year Chinese authorities have launched the most aggressive policy stimulus since the 2008/09 global financial crisis, including cutting interest rates six times since late 2014 and lowering bank reserve requirements. They have also taken other steps, including an announcement on Friday to lock-in more investments as Beijing tries to put a floor under the economy.
But the government has been struggling to reach its economic growth target of around 7% this year, which would be the weakest pace in a quarter of a century. Many analysts suspect actual growth is lower than official figures suggest.
