Slow industrial production puts more pressure on Chinese currency

China released a raft of disappointing economic data for July on Wednesday, adding to concerns about the outlook for the world’s second largest economy and raising expectations of further stimulus from the government.

Investment in high-tech sectors and industrial technological upgrades expanded 16.4 percent and 12.9 percent year on year respectively, while investment growth in 6 sectors with the highest energy costs slowed to 6.3 percent from 7.5 percent in the first half.

Growth in fixed-asset investments excluding rural households edged down from 11.4 per cent in the first six months to 11.2 per cent in the first seven months, the slowest pace since 2000.

“Local governments can’t afford a large number of infrastructure projects given falling revenues from land sales, so they’ll have to rely on the PPP model to fund infrastructure construction”, Zhang Yu, an analyst with Minsheng Securities Co, told the Global Times.

Jiang Yuan, an analyst with the NBS, attributed the sharp slowdown in industrial output partly to declining exports.

Average daily output stood at 2.124 million tonnes, down 7.6 per cent from June, its lowest since November 2014, according to Reuters calculations based on data from the National Bureau of Statistics (NBS).

The downturn is even affecting sales of air conditioners.

The rise in sales area compares with a 3.9 per cent annual rise in January to June.

Retail sales held steady in July, as the growth rate was just 0.1 percentage point lower than a month ago.

China’s weakening yuan could also draw down oil demand growth, although the diminishing purchasing power of the currency might only slow strategic reserve stockpiling of crude oil and not underlying consumption.

Meanwhile, in the January-July period of this year, China’s overall value-added industrial output increased by 6.3 percent year on year.

The data came after previous data showing deepening factory-gate deflation and a fall in exports in July. Real estate investment, which directly affects about 40 other business sectors in China, is considered to be a crucial growth driver.

The ongoing warm-up in home sales is driving the recovery in real estate investment.

The latest throughput and net import figures put China’s implied oil demand in the first seven months of 2015 at 10.39 mln bpd, up roughly 4.6 percent from the same period past year.