China’s economy cools further, investment growth at record low

Industrial output failed to accelerate as expected, rising 6.0 percent in July, China’s National Bureau of Statistics said. (Reuters)
Updated 14 August 2018
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China’s economy cools further, investment growth at record low

  • Fixed-asset investment growth slowed more than expected to 5.5 percent in January-July
  • China and the US have slapped a series of tit-for-tat tariffs on each other’s goods in July and August and more are due to kick in next week

BEIJING: China’s economy is showing further signs of cooling as the US prepares to impose even tougher trade tariffs, with investment in the first seven months of the year slowing to a record low and retail sales softening, data showed on Tuesday.
Fixed-asset investment growth slowed more than expected to 5.5 percent in January-July, highlighting weakening domestic demand and faltering business confidence as the US trade war adds to domestic pressures from Beijing’s crackdown on debt and pollution.
The pace of investment was the weakest on record going back to early 1996, according to data on Reuters Eikon. Investment had been expected to grow 6.0 percent in the first seven months of the year, steady from January-June.
Retail sales also missed expectations, with Chinese consumers more reluctant to spend on everything from cosmetics and other everyday goods to big-ticket items such as home appliances and furniture.
Sales rose 8.8 percent in July from a year earlier, below an expected 9.1 percent and down from 9.0 percent in June.
Industrial output failed to accelerate as expected. It rose 6.0 percent in July, the National Bureau of Statistics said, missing analysts’ estimates for a rise of 6.3 percent and compared with a rise of 6.0 percent in June.
While recent readings on trade and inflation have so far shown only limited impact from the trade war with Washington on the world’s second-largest economy, there are growing concerns that the escalating dispute could produce a sharper Chinese economy slowdown than expected just a few months ago.
China and the US have slapped a series of tit-for-tat tariffs on each other’s goods in July and August and more are due to kick in next week.
In one of the few brighter spots in the data, private sector fixed-asset investment rose 8.8 percent in January-July, compared with an increase of 8.4 percent in the first half. Private investment accounts for about 60 percent of overall investment in China.
But growth in infrastructure spending, a powerful economic driver last year, slowed to 5.7 percent in the first seven months of the year, compared with a rise of 7.3 percent in January-June.
Still, there were some very early signs that Beijing’s recent shift in focus to growth boosting measures may already be helping to cushion the broader economic slowdown.
Real estate investment rose 13.2 percent in July from the same period a year earlier, the fastest pace since October 2016 and higher than June’s 8.4 percent rise, according to Reuters calculations.
July new construction starts jumped 32.4 percent on-year, the most since late 2014.
New infrastructure loans also rebounded sharply in July to 172.4 billion yuan ($25.05 billion), an increase of 46.9 billion yuan over the month before, China’s banking and insurance regulator said in a statement on Saturday.
China’s Politburo said in a meeting last month it would keep its economic growth within a reasonable range and achieve this year’s target, despite the risks to growth.
In a bid to boost growth and weather the US trade war, Beijing has said it would step up infrastructure investment in targeted areas and resort to more accommodative fiscal policy. It also has announced tax cuts and large liquidity injections which are tamping down borrowing costs.
That has raised fears among some China watchers that Beijing is returning to the days of debt-fueled stimulus, and is relaxing its multi-year campaign to reduce risks in the financial system and a mountain of debt.
But unless business conditions deteriorate markedly, most economists believe Beijing will stick with its deleveraging campaign, albeit at a more cautious pace, as it waits to see how the trade dispute plays out.
For now, a return to massive money printing like that seen during the global financial crisis, which would risk a further debt blowout, does not seem to be on the cards.


Foreign investors hope India dials back policy shocks after Modi win

Updated 24 May 2019
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Foreign investors hope India dials back policy shocks after Modi win

  • Modi’s pro-business image and India’s youthful population have lured foreign investors
  • After Modi’s win, about a dozen officials of foreign companies in India and their advisers said they hoped he would ease his stance and dilute some of the policies

NEW DELHI: Foreign companies in India have welcomed Prime Minister Narendra Modi’s election victory for the political stability it brings, but now they need to see him soften a protectionist stance adopted in the past year.
Modi’s pro-business image and India’s youthful population have lured foreign investors, with US firms such as Amazon.com , Walmart and Mastercard committing billions of dollars in investments and ramping up hiring.
India is also the biggest market by users for firms such as Facebook Inc, and its subsidiary, WhatsApp.
But from around 2017, critics say, the Hindu nationalist leader took a harder, protectionist line on sectors such as e-commerce and technology, crafting some policies that appeared to aim at whipping up patriotic fervor ahead of elections.

Opinion

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“I hope he’s now back to wooing businesses,” said Prasanto Roy, a technology policy analyst based in New Delhi, who advises global tech firms.
“Global firms remain deeply concerned about the lack of policy stability or predictability, this has sent a worrying message to global investors.”
India stuck to its policies despite protests and aggressive lobbying by the United States government, US-India trade bodies and companies themselves.
Small hurdles
Modi was set to hold talks on Friday to form a new cabinet after election panel data showed his Bharatiya Janata Party had won 302 of the 542 seats at stake and was leading in one more, up from the 282 it won in 2014.
After Modi’s win, about a dozen officials of foreign companies in India and their advisers told Reuters they hoped he would ease his stance and dilute some of the policies.
Other investors hope the government will avoid sudden policy changes on investment and regulation that catch them off guard and prove very costly, urging instead industry-wide consultation that permits time to prepare.
Protectionism concerns “are small hurdles you have to go through,” however, said Prem Watsa, the chairman of Canadian diversified investment firm Fairfax Financial, which has investments of $5 billion in India.
“There will be more business-friendly policies and more private enterprise coming into India,” he told Reuters in an interview.
Tech, healthcare and beyond
Among the firms looking for more friendly steps are global payments companies that had benefited since 2016 from Modi’s push for electronic payments instead of cash.
Last year, however, firms such as Mastercard and Visa were asked to store more of their data in India, to allow “unfettered supervisory access,” a change that prompted WhatsApp to delay plans for a payments service.
Modi’s government has also drafted a law to clamp similar stringent data norms on the entire sector.
But abrupt changes to rules on foreign investment in e-commerce stoked alarm at firms such as Amazon, which saw India operations disrupted briefly in February, and Walmart, just months after it invested $16 billion in India’s Flipkart.
Policy changes also hurt foreign players in the $5-billion medical device industry, such as Abbott Laboratories, Boston Scientific and Johnson & Johnson, following 2017 price caps on products such as heart stents and knee implants.
Modi’s government said the move aimed to help poor patients and curb profiteering, but the US government and lobby groups said it harmed innovation, profits and investment plans.
“If foreign companies see their future in this country on a long-term basis...they will have to look at the interests of the people,” Ashwani MaHajjan, an official of a nationalist group that pushed for some of the measures, told Reuters.
That view was echoed this week by two policymakers who said government policies will focus on strengthening India’s own companies, while providing foreign players with adequate opportunities for growth.
Such comments worry foreign executives who fear Modi is not about to change his protectionist stance in a hurry, with one offical of a US tech firm saying, “I’d rather be more worried than be optimistic.”