Chinese Factory Output Slows on Exports, Prices

China's industrial output growth slowed to 14.7 percent in the year to July, a 19-month low, as manufacturers struggled with weakening export demand and rising input costs, the government said on Thursday.

CNBC.com

The pace of production was well down from June's rate of 16.0 percent and market forecasts of a 15.9 percent rise.

The National Bureau of Statistics said seasonal maintenance work, factory closures for the Olympics and the fallout from a succession of natural disasters, including May's devastating Sichuan earthquake, also took a toll on production.

"The figure will intensify the market's worry about an economic slowdown," said Lu Zhengwei, chief economist at Industrial Bank in Shanghai.

Gross domestic product growth slowed to 10.4 percent in the first half of the year from 11.9 percent in all of 2007.

But Lu added: "Things will improve a little after the Olympic Games as Western countries place orders to prepare for Christmas."

Determined to clean up Beijing's air for the Olympics, Beijing has ordered the closure of hundreds of factories and power plants in and around the capital. The authorities have also imposed strict curbs on transport and visas, which businessmen say have disrupted their operations.

A credit squeeze orchestrated by the central bank to cap inflation is also hurting industry, especially smaller export-oriented firms that find it difficult to borrow from big state-owned banks.

"We expect industrial production growth to be under continued pressures from these impacts, especially in the next two months," Goldman Sachs economists Hong Liang and Yu Song said in a report.

Electricity production slowed even more than factory output. Annual growth in power generation last month fell to 8.1 percent, a six-year low, from 8.3 percent in June. Nearly half of China's provinces have been rationing power due to dwindling coal stocks.

Despite the dip in July, factory output in the first seven months of the year was up 16.1 percent from the same period last year.

"There is a little more caution both around the world and in China compared with a few months ago. The Japanese economy seems to be slipping into recession and Europe is spluttering, so in that environment you can see how China would feel the fallout," said David Cohen with Action Economics in Singapore. "But I think there's enough home-grown momentum so that China on balance will be a welcome source of demand for the world economy," he added.

The report added to the gloom in the stock market. Shanghai shares were down 0.4 percent in late morning at a 19-month low.

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