Mainland factory-output slump tests Premier Li’s resolve

China’s industrial output rose at the weakest pace since the global financial crisis and fixed-asset investment growth trailed projections, adding to evidence the world’s second-biggest economy is losing momentum.
Factory production rose 6.9 percent from a year earlier in August, the National Bureau of Statistics said Saturday in Beijing, compared with 9 percent in July and the 8.8 percent median estimate in a Bloomberg News survey. Retail sales gained 11.9 percent and fixed-asset investment in the January-August period increased 16.5 percent.
The data signal the impact of China’s property slump on the economy is deepening, with the decline in home sales accelerating last month and electricity output falling for the first time since 2009. The slowdown will test Premier Li Keqiang’s reluctance to spur growth with monetary stimulus, as risks multiply to his 2014 expansion goal.
“Li should be worried if he’s serious about meeting his 7.5 percent target,” said Liu Li-Gang, chief Greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. “For the sake of his credibility, he may want to use further policy levers to achieve his target,” such as lowering reserve requirements for the country’s largest banks, Liu said.
State-owned commercial lenders are the main source of funding for China’s industrial sector, Liu said. “If they don’t extend more credit it’s difficult to see any reacceleration in growth for the rest of the year.” ANZ estimates the year-on-
year increase in gross domestic product may slip to 6.5 percent to 7 percent in the third quarter if September data are also weak. Growth was 7.5 percent in the April-June period. Bloomberg