BEIJING (Reuters) – China's production growth slowed significantly more than expected in October, as the weakness of global and domestic demand and the pullout of the Sino-American trade war weighed on broad segments of the world's second-largest economy.
FILE PHOTO: Employees working on production line of a TV factory under Zhaochi Group in Shenzhen, China August 8, 2019. Photo taken August 8, 2019. REUTERS / Jason Lee / File Photo
Industrial production increased 4.7% year from the year in October, data from the National Bureau of Statistics showed Thursday, below the median forecast of 5.4% growth in a Reuters poll and slower than 5.8% from September.
The indicators showed that other sectors also slowed significantly and missed forecasts with growth in retail sales back near a 16-year bottom and growth in fixed assets as the weakest on record.
The disappointing figures show China off to a rough start in the last three months of 2019 and will strengthen Beijing's calls for new support after growth in its third quarter slowed to its weakest in almost three decades, with factory production lagging behind. trade war with Washington.
Asian stocks fell after the soft data, which intensified concerns that the trade war was hurting one of the world's most important drivers of economic growth.
"These data support our view that headwind growth remains strong and the economy has not yet hit bottom," Nomura said in a note, adding that GDP growth is expected to slow to 5.8% in the fourth quarter from 6.0% in the third quarter.
The broad activity in China's factory industry was still weak in October, with producer prices falling at their fastest pace in more than three years, and production activity declining in a six-month period, recent indicators showed.
Thursday's data showed that the value of industrial exports delivered fell 3.8% year-over-year, marking the third straight month of decline.
China's steel production fell to a seven-month low in October while cement production contracted for the first time in over a year, compared to the previous year.
China-US tariff wars have hit global demand, disrupted supply chains and supported financial markets.
Other major trading powers have also felt the blow from the conflict with Japan's economy, which approached near-silence in the third quarter, and experienced the weakest growth in a year.
While some signs of recent progress in the trade negotiations between the superpowers have pleased the financial market, officials from both sides have so far avoided the firm commitment to end the dispute.
This uncertainty has persistently weighed on manufacturers and order books in recent months, casting doubt on the prospect of a breakthrough.
"Although a smaller deal has been agreed in the coming months, this will only allow the focus to shift to the more crucial issues that we believe will eventually lead to trade talks breaking," China Economist China Economist Martin Lynge Sa Rasmussen.
Construction investment, a major driver of economic growth, rose only 5.2% from January to October, against expected growth of 5.4% and the slowest pace since the Reuters record began in 1996.  Infrastructure investment increased by 4.2% over the first 10 months, declining from a 4.5% gain in January-September.
In an effort to stop this trend, the Chinese government promised on Wednesday to lower the minimum capital adequacy requirement for some infrastructure investment projects.
At the same time, local governments are facing increasing fiscal burdens as tax cuts and the broader downturn reduce revenues, hindering the large infrastructure projects Beijing needs to revive growth.
Meanwhile, China's real estate investment and sales growth eased to three months low in October, suggesting a critical pillar of the economy is softening.
Retail sales increased by 7.2% from the previous year in October, and lacked expected growth of 7.9%, which corresponds to the more than 16 years in April.
Consumers have been hit by higher food prices in recent months as pork and other meat prices rose sharply. For October, they bought fewer garments, jewelry, cars from a year earlier.
SUPPORTING THE ROAD
To support growth this month, China's central bank cut its interest rates on its one-year medium-term lending, a key policy rate, for the first time since early 2016.  Analysts said that cut, though is modest, may be a sign that the central bank is becoming more proactive and looks to alleviate concerns that higher inflation will prevent it from providing new stimulus.
“Financial results still face a considerable number of risks and challenges, and these cannot be underestimated. In the next step, we will … continue to fully implement countercyclical policy, "spokeswoman for Statistics Bureau Liu Aihua told reporters in a briefing.
Earlier this week, Premier Li Keqiang flagged the need for more efficient use of financial support tools, such as "countercyclical adjustments" and local government bonds.
In a front-page editorial on Thursday, the state-owned Securities Times said authorities should tolerate increases in China's gross domestic product debt to allow changing economic conditions.
Writing by Stella Qiu; Editing by Sam Holmes