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China's economy worsens in July

Kevin Yao and Huizhong Wu

China s reported a raft of unexpectedly weak July data, including a slump in industrial output to more than 17-year lows, pointing to further slowing in the economy as the US trade war takes a heavy toll on businesses and consumers.

Activity in China has continued to cool despite a flurry of growth measures over the past year, raising questions over whether more forceful stimulus may be needed, even at the risk of racking up more debt.

After a flicker of improvement in June, analysts said the latest data was evidence that demand faltered across the board last month, from industrial output and investment to retail sales.

That followed weaker-than-expected bank lending and gloomy factory surveys, reinforcing expectations that more policy support is needed soon.

"China's economy needs more stimulus because the headwinds are pretty strong and today's data is much weaker than consensus," said Larry Hu, head of Greater China economics at Macquarie Group in Hong Kong.

"The economy is going to continue to slow down. At a certain point, policymakers will have to step up stimulus to support infrastructure and property. I think it could happen by the end of this year."

Industrial output growth slowed markedly to 4.8 per cent in July from a year earlier, data from the National Bureau of Statistics showed, lower than the most bearish forecast in a Reuters poll and the weakest pace since February 2002.

Analysts had forecast it would slow to 5.8 per cent, from June's 6.3 per cent.

Infrastructure investment also dropped back, as did property investment, which has been a rare bright spot.

Crude steel output fell for a second straight month in July, while production of motor vehicles continued to fall by double digits.

The industry ministry said last month the country would need "arduous efforts" to achieve the 2019 industrial growth target of 5.5 per cent to 6.0 per cent, citing trade protectionism.

China's economic growth cooled to a near 30-year low of 6.2 per cent in the second quarter, and business confidence has remained shaky, weighing on investment.

While officials have cautioned it would take time for higher infrastructure spending to kick in, construction growth has been more muted than expected.

Fixed-asset investment rose 5.7 per cent in January-July from the same period last year, lagging expectations of a 5.8 per cent gain, the same as January-June.

Infrastructure investment - a powerful growth driver - rose 3.8 per cent in the first seven months from a year earlier, slowing from 4.1 per cent in the first half despite massive local government bond issuance, mainly to fund road and rail projects and other civic works.

In a sign the housing market's resilience may be waning as Beijing cracks down on speculation, property investment slowed to its weakest this year. It rose 8.5 per cent on-year in July, from June's 10.1 per cent. Though home sales inched back to growth, new construction starts cooled.

Retail sales are also pointing to growing consumer caution, most evident in falling car sales but also in property-related spending on items such as home appliances and furniture.

Retail sales rose 7.6 per cent in July, well off consensus of 8.6 per cent and weaker than the most pessimistic forecast. Sales had jumped 9.8 per cent in June, which many analysts had predicted would be temporary.

Job security worries may also be a factor. Nationwide survey-based unemployment edged up to 5.3 per cent from 5.1 per cent in June, though many market watchers believe it could be much higher.

Economists at Nomura expect growth will slow to 6.0 per cent in the third and fourth quarters - the bottom end of the government's target range.

Some much-needed relief in the trade war came on Tuesday after US President Donald Trump said he would delay duties on some Chinese imports including mobile phones and other consumer goods, in an apparent effort to blunt tariffs' impact on US holiday sales.

Still, new tariffs will go into effect next month on about half of Washington's $US300 billion target list of Chinese goods, and analysts say the chance of any long-term trade deal after the recent escalations has sharply diminished.