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Associated Press
A woman picks vegetables at a supermarket in Hefei in central China’s Anhui province. China’s growth in factory output fell to a three-year low in July and retail sales weakened.

Factory output, retail sales slow in China

Government moves cautiously to boost suffering economy

– China’s growth in factory output fell to a three-year low in July and retail sales weakened, suggesting Beijing might need to launch more stimulus efforts to reverse a painful slowdown in the world’s second-largest economy.

Inflation eased further, giving Beijing more room to cut interest rates or boost spending.

Growth in industrial production weakened to 9.2 percent over a year earlier from June’s 9.5 percent, its lowest rate since May 2009, data showed late last week. Retail sales growth slowed to 13.1 percent from the previous month’s 13.7 percent.

“The authorities continue to struggle in reviving growth,” Alistair Thornton, IHS Global Insight analyst, said in a report. “The government needs to transform its current stimulus push into a stimulus punch.”

Analysts expect growth to rebound later this year after it fell to a three-year low in the latest quarter. But they say any recovery from China’s deepest slump since the 2008 global crisis will be too sluggish to revive a slowing global economy.

The slowdown raises the threat of job losses and possible unrest as the ruling Communist Party tries to enforce calm ahead of a once-a-decade handover of power to younger leaders.

The government has cut interest rates twice since the start of June and is pumping money into the economy through more spending on building public works. But it is moving cautiously after its huge stimulus in 2008 crisis ignited inflation and a wasteful building boom.

The unexpectedly weak factory output figures suggest a recovery might delayed until the final quarter of the year, said Alaistair Chan of Moody’s Analytics.

“The slowdown was broad-based, ranging from autos to electrical machinery to ferrous metal smelting,” Chan said in a report. “The numbers suggest that the production cycle is still in a decelerating phase.”

Politically sensitive consumer prices rose 1.8 percent, down from the previous month’s 2.2 percent and well below last year’s highs. That was driven by a 2.4 percent rise in food costs.

That gives the government more room to cut interest rates again or step up spending with less risk of igniting a new price spike.

“The numbers confirm that the door for more monetary easing is open,” Dariusz Kowalczyk, Credit Agricole economist, said in a report.

The slowdown in China’s rapid growth was brought on in part by government efforts to cool overheating and inflation in 2010-11 by tightening curbs on lending and investment.

Beijing reversed course late last year and eased some controls after global demand for Chinese goods plunged, causing growth to slow abruptly.

Premier Wen Jiabao warned last month the economy still faces “relatively large” pressure to slow further, prompting suggestions the government is contemplating still more stimulus measures.

Surveys released earlier showed Chinese manufacturing barely grew in July as global and domestic consumer demand weakened.

The International Monetary Fund cut this year’s growth forecast for China in mid-July from 8.2 percent to a still-robust 8 percent. It warned a or sharp downturn in growth is still possible.

Chinese leaders are moving more cautiously than they did in response to the 2008 global crisis after their huge stimulus then triggered an inflation spike and a wasteful building boom.