Weakening investment in China hits growth

The risk of missing the government’s annual growth target has increased in China. As weak confidence in China weighs on consumption and investment, economic activity has failed to gain momentum, and the risk of missing the government’s annual growth target has increased. Fixed asset investment growth slowed unexpectedly to 3.6% in the first seven months of the year, while consumption remained weak despite a seasonal increase last month. Capital expenditure growth by state-owned enterprises slowed to 6.3% in the first seven months from 6.8% in the first half of the year. Private companies’ spending slowed from a year earlier. Industrial production in China rose 5.3% in June, while retail sales rose 5.1% in July, beating expectations by 2.7%. The above-expected increase in retail sales was due to the base effect and the summer season, according to Serena Zhou, senior China economist at Mizuho Securities Asia Ltd. “We believe the economy is facing a significant threat from self-fulfilling deflation expectations,” Zhou said, adding that “the government’s top priority should be to break this downward spiral early with more ambitious measures.”