By Kevin Yao and Lusha Zhang
BEIJING (Reuters) - China's November retail sales grew at their weakest pace since 2003 and industrial output rose the least in nearly three years as the economy lost further momentum, heaping pressure on Beijing to defuse its trade dispute with the United States.
The world's second-largest economy has been losing momentum in recent quarters as a multi-year government campaign to curb shadow lending put increasing financial strains on companies in a blow to production and investment.
The stresses on broad activity have been compounded by a sharp escalation in China's trade row with the United States, which has threatened to fracture global supply chains, chill investment, exports and growth.
The slowdown in Chinese industries and the trade tensions have started to weigh on consumer sentiment, tapping the brakes on retail sales. Big-ticket items have been the first to be hit, with auto sales declining since May.
Retail sales rose 8.1 percent in November from a year earlier, data from the National Bureau of Statistics showed on Friday, below expectations for an 8.8 percent rise and the slowest since May 2003. In October, sales increased 8.6 percent.
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Auto sales fell a sharp 10.0 percent from a year earlier, in line with industry data showing sales dived 14 percent in November - the steepest drop in nearly seven years.
Industrial output rose 5.4 percent year-on-year in November, missing analysts' estimates and matching the pace seen in January-February 2016. Factory output had been expected to grow 5.9 percent, unchanged from October's pace.
Over the weekend, China reported far softer than expected November exports and imports, reflecting slower global demand and waning domestic factory activity as profit margins narrow.
With economic growth at its weakest since the global financial crisis, Chinese policymakers are ramping up spending, pushing banks to increase lending and cutting taxes to shore up businesses and ward off a more damaging slump.
The weaker November industrial output and retail sales growth numbers showed that downward pressure on the economy is increasing, said Mao Shengyong, spokesman at the statistics bureau.
But China is on track to hit its 2018 economic growth target of around 6.5 percent, Mao told reporters.
"The need for cutting taxes, fees and interest rates has further increased," said Wang Jun, chief economist at Zhongyuan Bank in Beijing. "Insufficient demand has become the main problem."
The slackening demand in China is starting to worry its trading partners too. In Japan, machinery makers and auto manufacturers have seen their monthly orders to China falling, some by double-digits.
Asian shares tumbled on Friday after the weak Chinese data, fanning fresh worries of a sharp slowdown in Asia's largest economy. Chinese equities also slipped, while the yuan currency softened slightly.
GREATER URGENCY
A temporary 90-day trade war truce agreed by the United States and China early this month may have removed some of the immediate pressure on the economy. Both countries have heaped tariffs on billions of dollars of each other's goods since early summer.
"China's economy, if it's in trouble, it's only in trouble because of me," U.S. President Donald Trump told Fox News in an interview on Thursday.
The impact on China's economy from the Sino-U.S. trade frictions are not apparent yet, Mao cautioned, adding that the nation will face more "external" uncertainties in 2019 - increasing the urgency for Beijing to resolve the tariff dispute with the United States.
"So, the worst is yet to come and policymakers will be very worried, particularly with consumption growth falling off a cliff," said Sue Trinh, head of Asia FX Strategy at RBC Capital Markets.
Indeed, even in the unlikely event the world's top two economies reach a durable resolution in their dispute, ebbing domestic demand, mounting household debt and a cooling real estate sector point to a further slowdown in growth next year.
China's fixed-asset investment growth quickened to 5.9 percent in the January-November period, compared to an expected 5.8 percent gain and the 5.7 percent growth in January-October.
The year-to-date acceleration was due to weaker expansion earlier this year, according to Goldman Sachs.
EASY POLICY
Infrastructure investment, a major growth lever that Chinese policymakers have pulled in past slowdowns, rose 3.7 percent in the first 11 months. That was unchanged from the pace in the first 10 months of the year.
Mao said he expected to see more of an impact on investment from infrastructure projects in 2019.
Private-sector fixed-asset investment rose 8.7 percent in January-November, compared with an increase of 8.8 percent in the first 10 months.
Private investment accounts for about 60 percent of overall investment in China.
On the property front, real estate investment rose 9.7 percent in the first 11 months, unchanged from the pace in January-October.
Property sales by floor area grew 1.4 percent in January-November, slowing from an increase of 2.2 percent in the first 10 months.
The real estate sector, a key driver of economic growth in China, has been cooling in recent months as a government crackdown on property speculation and thinning margins for developers led to a surge in failed land auctions.
The cooling momentum in China is seen keeping monetary conditions easy for a while, with policy makers already having cut the level of cash banks must hold as reserves four times this year. China's central bank governor said on Thursday that monetary conditions should be relatively loose but not too loose.
"For monetary policy, there is still the possibility of cutting the RRR (reserve requirement ratio), but cutting interest rates is not needed for the time being," said Tang Jianwei, senior economist at Bank of Communications in Shanghai.
"Easing policy is necessary, but it is more important to boost confidence."
(Reporting by Kevin Yao; Writing by Ryan Woo and Lusha Zhang; Editing by Shri Navaratnam)