China's industrial output grew at a slower pace than any economist forecast in October, stoking concern that the biggest contributor to global growth is running out of steam.
Production rose 8.2 per cent from a year earlier, the smallest gain in seven years, the statistics bureau said today. None of 18 economists surveyed by Bloomberg News predicted such a small increase. Output grew 11.4 per cent in September.
The slowdown may prompt the central bank to cut interest rates for the fourth time in two months to augment a $586 billion package of government spending on housing and infrastructure, announced on November 9. China cut taxes on 28 per cent of exports yesterday to sustain growth in the economy that accounted for a quarter of the global expansion in 2007.
“China's economy is losing momentum faster than expected: the central bank needs to act,'' said Tao Dong, chief Asia economist at Credit Suisse Group AG in Hong Kong. “We hope this is the worst quarter and things start looking better next year because of the infrastructure plan.''
The one-year lending rate is 6.66 per cent after three cuts totalling 81 basis points since September. China's third-quarter economic expansion of 9 per cent was the weakest in five years. The yuan traded at 6.8301 against the dollar as of 2:11 pm in Shanghai, unchanged from before the announcement. The CSI 300 Index rose 3.3 per cent after the government detailed some spending, including power-plant construction.
Steel, Iron, Automobiles
Output of crude steel fell 17 per cent from a year earlier. Electricity production declined 4 per cent. Pig iron, steel products, and automobiles slipped. Cement and raw-coal output grew at a slower pace than in September.
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The economic slowdown, driven by falling export orders, weakness in real estate, and blows to confidence from the global crisis, is hurting companies from carmakers to metal producers.
Aluminum Corp of China Ltd, or Chalco, the nation's biggest producer of the metal, is idling alumina capacity, while PSA Peugeot Citroen, Europe's second-largest carmaker, cut 1,000 temporary workers in China after sales dropped.
“A sharp deceleration in industrial activity is being amplified by stock build up,'' said Louis Kuijs, an economist with the World Bank in Beijing. “Many, many steel factories and other factories may just as well close down because they have enough inventories to provide customers without producing anything.''
Deepening Slowdown
Production growth was the weakest since November 2001, after eliminating distortions in January and February each year caused by China's Lunar New Year holiday.
The global credit squeeze brought orders for China's exports to a sudden halt last month, Frank Gong, head of China research at JPMorgan Chase & Co, said in Beijing today.
“Importers couldn't get the letters of credit to fulfill their orders so they had to cancel,'' Gong said. “That hit China especially hard because it does a lot of business before Christmas.''
Inflation eased to the slowest pace in 17 months in October, money supply expanded by the least in three years, and import, export and retail sales growth cooled, this week's figures showed.
Construction contracted in September by the most since the 1990s, according to Macquarie Securities Ltd Export orders fell last month to the lowest since 2005, a survey showed.
The economy may expand 5.8 per cent this quarter, the weakest pace in at least 15 years, Credit Suisse AG estimates.
Spending Spree
The government, which needs to create millions of jobs each year as workers migrate to cities from the countryside, is banking that spending on housing, rural infrastructure, railways, roads and airports will revive growth. The fiscal package runs through 2010.
“Industrial-production growth should continue to decline as China's export-oriented industries scale back their operations due to lower demand from the US and Europe,'' said Jing Ulrich, chairwoman of China equities at JPMorgan Chase & Co in Hong Kong. “With the trade component of China's growth slowing, domestic consumption and investment spending will need to pick up the slack.''
Two surveys, one conducted by the government and the other by CLSA Asia-Pacific Markets, showed manufacturing contracted by the most on record in October as output and new orders fell.
China contributed the most to global growth in 2007, the International Monetary Fund said in a report in April this year. It used purchasing power parity calculations, which account for differences in the exchange rates of national currencies.