China’s industrial output growth fell to a fresh low in November, providing further proof that the country’s economy has been hit more severely by the global economic crisis than anticipated.
Industrial production growth dropped to 5.4 per cent, down from 8.2 per cent in October, as exports fell the most in nearly a decade and the real estate sector continued to decline, official data showed on Monday.
“Excluding holiday-related distortions, this is the weakest result since the series first began in 1994,” said Ben Simpfendorfer, an economist for Royal Bank of Scotland in Hong Kong. “As a result, 5 per cent GDP growth in the first half of 2009 is now a reality, not a risk.”
Dominique Strauss-Kahn, managing director of the International Monetary Fund, told reporters in Madrid on Monday that next year “China will probably grow at 5 or 6 percent”.
Heavy industry saw the biggest contraction in November, particularly in sectors which make materials for the building industry. Steel production fell 12 per cent last month.
“The data will turn uglier and risks remain biased to even slower growth,” Mr Simpfendorfer said. “It’s urgent for fiscal easing to provide some support to a contracting heavy industrial sector.”
The speed and severity of China’s downturn has caught Beijing at unawares and prompted a flurry of policy measures aimed at boosting faltering growth.
The governing State Council released a “30-point plan” over the weekend calling on the central bank and state-owned lenders to do everything in their power to avoid a pronounced slowdown and deflation.
The plan set a monetary growth target of 17 per cent in 2009, which would boost the money supply by Rmb7,700bn and provide a huge flood of liquidity aimed at ensuring the economy can grow by the government’s target of 8 per cent, according to Qu Hongbin, an HSBC economist in Hong Kong.
The plan also promised regulatory relief for the beleaguered stock market and further credit support measures for first-time homebuyers and the real estate sector.
“The best thing China can do [about the global slowdown] is maintain policies that support its own growth,” Robert Zoellick, World Bank president, said in Beijing on Monday. “China has already taken some important steps.”
In early November, Beijing announced a Rmb4,000bn economic stimulus package aimed at restarting the economy through massive infrastructure investment through 2010. In the following weeks, it emerged that the central government intended to spend just Rmb1,180bn to encourage local governments, state-owned and private companies to invest the remaining sum.
Even government experts have warned that many local governments are already deeply indebted. The current crisis has led to a collapse in tax revenues that has worsened their plight.
“Recession and deflation alarms are ringing loudly in China,” said Sherman Chan, an analyst at Moody’s credit rating agency, in a report. “Despite its determination, the government will find it difficult to ignite domestic growth amid rising unemployment.”
Widespread layoffs, particularly in the construction and export sectors, have already sparked numerous protests and riots across the country and officials have repeatedly warned that if growth falls below 8 per cent the government may be unable to manage the resulting social instability.