China's industrial output slowed more than expected in August in a tentative sign that tightening measures and tax changes aimed at slowing the world's fastest-growing major economy may be working.
The National Bureau of Statistics said annual production growth slowed to 17.5% from 18.0% in July, a pace that economists had expected to be sustained in August.
"If it happened under different circumstances, this kind of slowdown might not be good. But in the current situation, I think it is a positive, in line with the government's policy intentions," said Chen Xingdong, chief economist with BNP Paribas Peregrine in Beijing.
Beijing has taken a series of steps to cool growth especially in sectors that consume large amounts of energy or are highly polluting, slashing value-added tax rebates on exports of such products and ordering banks to tighten credit for them.
The central bank has also raised interest rates four times so far this year to rein in liquidity and investment. In addition to the modest slowdown in factory output, the pace of export growth slowed more than expected last month.
Chen Jijun, an analyst with CITIC Securities in Beijing, said the slowdown in industrial production provided some evidence that the government's measures were starting to have an effect.
Annual growth in output of textiles slowed to 14.4% in August from 15.8% in July; that of crude steel slipped to 13.6% from 14.5%.
"Consumption will accelerate further in coming months, but investment and trade may ease a little bit, so industrial production growth may continue to show a modest slowdown," Chen said.
More Tightening To Come?
Still, other data for August, including a jump in consumer inflation to 6.5%, the fastest pace since December 1996, have raised expectations that the authorities will act sooner rather than later to tighten policy again.
Hong Liang and Yu Song, economists with Goldman Sachs in Hong Kong, said that although growth had moderated, it was still relatively fast. Recent data on commodity prices and freight rates also suggested that factories continued to hum.
"In addition, the 11-year record-high inflation rate reported for August is likely to keep policy makers on a tightening stance in the near term despite the moderation in IP growth," they said in a research note.
The prospect of another tug on the policy reins failed to dampen enthusiasm on the Shanghai stock market, which has doubled this year. At the end of Thursday morning's session, the main index was up another 0.84%.
Nor do foreign investors show any sign of deserting China, despite rising production costs and the stricter controls over energy-intensive and polluting industries.
Foreign direct investment rose 12.8 percent from a year earlier in the first eight months to $41.95 billion, the Commerce Ministry said on Thursday. In August alone, China drew $5.02 billion in FDI.