China Growth Slows as Beijing's Debt Crackdown Takes Hold

FeaturesDow Jones Newswires

Economic data out of China indicated a slowdown in July as Beijing's crackdown on property speculation and rising debt levels started to filter through into the world's second-largest economy.

The pace of Chinese industrial output, retail and housing sales, and fixed-asset investment decelerated in July from the previous month, according to official data released Monday. All came in lower than economists' forecasts.

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Together, the figures illustrate the dilemma for the central government in achieving economic growth targets while clamping down on risky lending.

"The soft numbers for July seem to confirm that, despite the strong first half, China's economic growth will cool in the second half of this year on less accommodative monetary policy and slower growth in real estate," said Louis Kuijs, an economist with Oxford Economics.

Value-added industrial output, a rough proxy for economic growth, rose by 6.4% in July from a year earlier, compared with a 7.6% increase in June, the National Bureau of Statistics said. July's figure was the slowest pace in five months.

Fixed-asset investment, which includes expenditure on roads, new apartments and factories, grew 8.3% in the first seven months of 2017 from a year earlier, slowing from a pace of 8.6% over the January-June period.

Retail sales, meanwhile, increased 10.4% in July from a year earlier, slowing from an 11.0% gain in June.

Property investment, which slowed to 7.9% expansion in the January-July period from 8.5% in the first six months, was one of the major forces that weighed on growth in July, economists said.

In an effort to rein in a property bubble, Chinese policy makers imposed new measures this year to restrict home purchases in big cities and to raise interest rates charged for buyers. These moves are widely believed to put the economy on a healthier footing, economists say, but are also expected to hurt growth: The real-estate sector, including construction and home furnishings, now accounts for almost one-third of China's gross domestic product.

The property market is cooling and housing speculation is being curbed, Mao Shengyong, a spokesman for the statistics bureau, said Monday. The latest data also showed property sales and construction starts decelerating in July.

Economists have anticipated a broad slowdown as China's leaders signaled they would continue efforts to tackle rising debt levels and curb home speculation. The Chinese economy has been heavily reliant on borrowed money and government-led investment since Beijing launched a stimulus package amid plummeting external demand in the wake of the global financial crisis.

Government officials and economists have said the debt-fueled growth model is hard to sustain and has left the economy increasingly overleveraged while delivering a diminished effect on growth.

"The so-called financial deleveraging has already affected the real economy as borrowing costs climbed across the board," said Tommy Xie, an economist at OCBC Bank. China's central bank said on Friday that the average lending rate in the economy continued to pick up in the second quarter of the year.

He Yimin, a saleswoman for Xin Gang Cheng Stainless Steel Wares Co. based in southern Chinese city of Yunfu, said her company doesn't have any plan to expand production or investment in coming months.

"The operating costs, especially labor costs, have been rising every year. We still hold a wait-and-see attitude toward the market and the economy," she said. Ms. He's company sells steel cutlery and kitchenware to Europe and the U.S. as well as in the domestic market.

Despite the slowdown, many economists believe China can meet its growth target for 2017 of at least 6.5%, after higher-than-expected growth of 6.9% in the first half.

"July's data showed that growth momentum will ebb in the months ahead amid a cooling home market and rising funding costs for companies. But the slowdown will not pose any risk for the government to meet its growth target this year," said Liu Xuezhi, an economist with Bank of Communications.

(END) Dow Jones Newswires

August 14, 2017 01:33 ET (05:33 GMT)