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Nov. 13, 2019, 11:46 p.m. EST

China's economy shows news signs of weakness

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By MarketWatch

BEIJING--China's economy is showing fresh signs of weakness even as inflation continues to tick higher--a conundrum for policy makers as the trade dispute with the U.S. drags on.

Readings of economic growth slowed further in October, government data showed on Thursday, with disappointing numbers in industrial output, household consumption and fixed-asset investment.

China's official National Bureau of Statistics said value-added industrial output in October was up 4.7% from a year earlier, slowing from September's 5.8% pace and short of the median 5.2% forecast of 15 economists polled by The Wall Street Journal. Retail sales were up 7.2%, likewise slowing from September's 7.8% pace and missing the 7.8% forecast.

Fixed-asset investment in urban areas, a closely watched indicator of construction activity, was up 5.2% in the first 10 months of 2019 from a year earlier, slowing from January-September's 5.4%, and again short of economists' expectations. The main drag was by weakness in property and infrastructure construction, official data showed.

Taken together, the weak economic figures add to evidence that the world's second-largest economy is broadly slowing--as consumer inflation accelerates, driven by surging pork prices.

"There are many external uncertainties: Domestic cyclical issues have coincided with structural issues," Liu Aihua, a spokeswoman for the statistics bureau, told reporters on Thursday. "Downward pressure on the economy has increased continuously. Risks and challenges we are facing cannot be underestimated."

Ms. Liu also highlighted some positive news: The urban jobless rate fell slightly to 5.1% last month, with the unemployment rate for university graduates ages 20 to 24 falling more than one full percentage point, official surveys showed. Explaining the resilience in the labor market, she cited a stronger service sector, more flexible job options in the startup economy and governmental efforts.

Ms. Liu told reporters that she expected governmental measures--which include tax cuts, monetary easing and some infrastructure spending--to have an effect, and expressed confidence that headline economic growth for the year would hit Beijing's target of 6.0% to 6.5%. Growth in the third quarter slowed to 6.0%.

Even so, economists warned about further challenges, as expectations for higher inflation set in and sluggish domestic demand continues to weigh on the economy.

Last week, officials said China's main gauge of consumer inflation hit 3.8% in October, the highest level in nearly eight year. Many economists expect further rises in the coming months, with the rate perhaps hitting 6% in the new year.

The statistics bureau's Ms. Liu said that core consumer inflation, which excludes volatile food and oil prices, is a more indicative gauge of price levels than the headline inflation number.

Thursday's disappointing industrial-production reading reflects slack demand both at home and abroad, said Hunter Chan, an economist at Standard Chartered Bank in Hong Kong, who said the government Beijing has to do more to stimulate domestic demand. He expects Beijing to lower borrowing rates and approve more local government spending next year.

Even with slower overall investment numbers, China's property sector remains a rare bright spot. Both housing sales and new construction starts picked up, even as the government tightened controls to stamp out real-estate speculation.

But most economists expect the real-estate sector to moderate, exerting further downward pressure on the economy, as the regulatory tightening causes financing in the sector to dry up.

Liyan Qi, Grace Zhu and Bingyan Wang

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