CHINA’s economic growth remains stuck below the government’s target of about 7% this year, raising prospects for additional stimulus.
Bloomberg’s monthly gross domestic product tracker was at 6.64% last month, barely changed from July. Industrial output missed economists’ forecasts on Sunday, while investment in the first eight months increased at the slowest pace since 2000.
In a juggling act that is getting more complex, authorities are seeking to cushion the slowdown, support the stock market, stabilise the yuan and continue reforms to open up the world’s second-biggest economy. The latest steps include reforms of state-owned enterprises (SOEs), reductions to capital needs for some investment projects, and efforts to lure more private money for public projects.
“The economy still faces serious downward pressure,” says Wang Tao, chief China economist at UBS. “The government will have to redouble efforts in pushing infrastructure investment in the rest of the year to stabilise growth.”
The Shanghai Composite index fell 2.7% on Monday. The benchmark for Chinese shares has tumbled 40% from a seven-year high in June amid concern economic growth will slow further.
Five interest-rate cuts in 10 months and plans to boost government spending have yet to revive an economy mired in a property slump, overcapacity and factory deflation.
“Monetary policy will likely maintain an easing bias, and fiscal policy may pull more weight in supporting growth,” Eva Yi and Liang Hong at China International Capital wrote on Sunday. They cut their third-quarter growth forecast to 6.5% from 7% and the fourth quarter to 6.6% from 7.2%.
China will make a greater effort to reform “zombie enterprises”, the State-owned Assets Supervision and Administration Commission of the State Council says. Reforms would ensure SOE boards of directors could exercise power in making important decisions, the agency says.
Private capital will be attracted to invest in infrastructure and public utilities, the National Development and Reform Commission said separately.
China has reduced capital requirements for infrastructure projects in its latest move to boost capital spending. According to an official notice on Sunday, the requirement for port, airport and commercial property development projects will be reduced to 25% from 30%, while for railways and roads it will be cut to 20% from 25%.
The change is aimed “to expand effective investment demand”, the State Council says. Capital requirements in overcapacity industries from steel to cement remain unchanged.
Such structural shifts sit alongside the need for more immediate measures to support growth.
The country is raising the quota for a bond-swap programme for regional authorities to 3.2-trillion yuan ($500bn) to help ease debt pressure.
“From the perspective of monetary policy, the government has done what it can, but demand from the real economy needs to pick up to really make use of that,” says Ding Shuang, chief China economist at Standard Chartered.
“Now the government can only rely on fiscal policy. The debt-swap programme can help relieve pressure, and the government needs to expedite the pace to approve investment projects.”
August data show a challenging picture. Fixed asset investment excluding rural households climbed 10.9% in the first eight months versus a 11.2% median projection of economists. Industrial output rose 6.1% last month from a year earlier, missing the 6.5% estimate. Even with a lower base due to factory shutdowns for a military parade, there still was not much acceleration.
Premier Li Keqiang said last week that China could still maintain mid-to high-speed growth. Officials will press on with reforms to shift reliance from manufacturing and exports to services and consumption, he says.
“Growth stabilisation measures will probably continue to intensify,” Xu Gao and Yang Yewei at Everbright Securities write in a note. They expect more infrastructure investment funding through expansion of local government debts, special financial bonds and expedited bond issuance.
UBS expects infrastructure investment will grow by 20% or more this year to cushion the larger headwinds from the property slowdown.
The 10.8% retail sales growth was the bright spot last month, beating the forecast of a 10.6% gain. Transactions picked up in part on higher food prices, signalling resilient consumption.
The retail sales data suggest that the stock-market slide will not deal a blow to household confidence and dent consumption, Bloomberg chief Asia economist Tom Orlik writes.
“Robust spending on roads, waterworks, and other public projects is offsetting the slowdown in capital spending in real estate and manufacturing,” he says.