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 The world’s second-largest economy has started to show signs of fatigue, with momentum seen slackening further as Beijing’s crackdown on debt risks curbs demand and tighter pollution rules hits factory output.
 The world’s second-largest economy has started to show signs of fatigue, with momentum seen slackening further as Beijing’s crackdown on debt risks curbs demand and tighter pollution rules hits factory output.

Economy Cools Further as China Cracks Down on Debt, Pollution

Policy makers are making progress in defusing financial risks by weaning China off its years-long addiction to cheap credit

Economy Cools Further as China Cracks Down on Debt, Pollution

China’s economy cooled further last month, with industrial output, fixed asset investment and retail sales missing expectations as the government extended a crackdown on debt risks and factory pollution.
Beijing is already in the second year of a campaign to reduce high levels of debt as authorities worry that riskier lending practices, especially in the real estate sector, could imperil the economy, Reuters reported.
Data on Tuesday suggested policy makers are making progress in defusing financial risks by weaning China off its years-long addiction to cheap credit, and signaled moderating growth over the next few quarters.
Industrial output rose 6.2% year-on-year in October, the National Bureau of Statistics said, missing analysts’ estimates of a 6.3% gain and lagging a 6.6% increase in September.
Fixed-asset investment growth also slowed to 7.3% in the January-October period, from 7.5% in the first nine months. Analysts had expected an increase of 7.4%.

Lesser Loans
“The moderation in activity data released Tuesday suggests that growth slowed in October and adds to our conviction that it will continue to do so in the quarters ahead,” Nomura analysts wrote in a note to clients.
In the property sector, where authorities have tightened rules to flush out speculative financing that has helped drive a two-year boom, sales and new construction starts fell in October.
Property investment growth also cooled to 5.6% in October year-on-year, from 9.2% in September, Reuters calculated from National Bureau of Statistics data out on Tuesday.
“I think this (slowdown in real estate) is exactly what the government is looking to do. I don’t see them changing their policy course,” said Jonas Short, who heads the Beijing office at investment bank Sun Hung Kai Financial.
Data on Monday showed China’s new loans fell more than expected last month to their lowest in a year as banks tightened mortgage lending.

Surprising Strength
China’s economy has surprised financial markets with robust growth of nearly 6.9% in the first nine months of this year, underpinned by a recovery in its manufacturing and industrial sectors thanks to a government-led infrastructure spending spree, a resilient property market and unexpected strength in exports.
That has supported the world economy as the Asian giant has continued to hover up commodities and consumer goods, helping to stoke underlying global demand for cars and smartphones to TVs and industrial products.
And the overall picture backs the consensus view that the Chinese economy is entering a period of moderation rather than a rapid deceleration. China’s producer prices, for instance, were surprisingly strong in October, while profits at the country’s industrial heavyweights surged 27.7% in September, the most in nearly six years.

Quality Over Speed
Since the third quarter, however, the world’s second-largest economy has started to show signs of fatigue, with momentum seen slackening further as Beijing’s crackdown on debt risks curbs demand and tighter pollution rules hits factory output. More companies were closed as the government kept fighting industrial pollution.
China’s exports and import growth both eased last month, while the smog war dragged on manufacturing activity and pulled average daily crude steel output down for a second straight month in October.
The latest data also showed consumers might be tightening their purse strings. Retail sales gained 10% in October on-year, versus an expected 10.4% rise and below the 10.3% growth in September.
Private sector fixed-asset investment slowed to 5.8% for Jan-Oct, from 6% in the nine months ended September.
Analysts say that fiscal stimulus might also be pared back. Julian Evans-Pritchard, China economist at Capital Economics, said the economic impact of debt curbs and capacity closures to meet environmental standards were partly offset by strong infrastructure spending.
“But this support seems unlikely to last given that local governments are set to reduce spending in the final months of the year in order to meet budget targets.”
At China’s recently-concluded Communist Party Congress, President Xi Jinping said the country would focus on quality over speed as it pursues economic growth, and reinforced a pledge to win the war on pollution and clamp down on riskier types of lending.

 

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