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China's industrial output, investment continue to slow

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BEIJING, Sept. 9 (Xinhua) -- Industrial production and investment have continued to falter in China, dimming hopes for a robust recovery in the world's second-largest economy this year, official data showed Sunday.

China's industrial value-added output expanded 8.9 percent year on year in August, down from 9.2 percent in July and and the slowest rate since May 2009, according to figures from the National Bureau of Statistics (NBS).

Urban fixed-asset investment increased 20.2 percent year on year to 21.8 trillion yuan (3.4 trillion U.S. dollars) in the January-August period, 0.2 percentage points slower than the growth of the January-July period.

Private fixed-asset investment went up 25.1 percent to 13.5 trillion yuan, down 0.4 percentage points from the January-July period.

Annual retail sales growth accelerated to 13.2 percent in August from 13.1 percent in July, although inflation-adjusted growth actually slowed by 0.1 percentage points from July to 12.1 percent.

Analysts attributed the economic slowdown to diminishing external demand and authorities' hesitance to issue stimulus policies for fear of stoking inflation.

The impact of the eurozone crisis was underestimated, while credit injections were smaller than expected because of weak borrowing demand, said Liu Yuanchun, deputy head of the School of Economics at Renmin University of China.

He predicted the weakness to last in the third quarter, although accelerated government investment and previous pro-growth policies may make some difference.

"China's economy is still in the trough and this situation is likely to go on longer than expected," said Liu. "Even if we see a recovery in the fourth quarter, it will be a mild one."

The biggest risk to China's economy comes from external uncertainties and the government must brace for the spread of the European sovereign debt crisis, said Zhang Liqun, a researcher with the Development Research Center of the State Council, or China's cabinet.

Flagging demand from Europe, as well as from the United States and Japan, slowed the country's year-on-year export growth to a mere 1 percent in July.

Wang Jun, a researcher with the China Center for International Economic Exchanges, said exports in August will likely see zero or even negative growth.

He viewed the government's response to the economic slowdown as "too conservative," as policymakers are worried that aggressive lending could drive inflation up.

The central bank has cut its lending and deposit rates twice this year, as well as lowered the amount of funds that banks must keep in reserve.

China's consumer price index (CPI) rose 2 percent year on year in August, accelerating from 1.8 percent in July, due to food price hikes, according to data released by the NBS earlier Sunday.

The interest rate cuts have led to warming in the property market, adding to market concerns that authorities will refrain from further easing in order to keep housing prices in check, said Liu.

Home sales saw 2.2-percent year-on-year growth in the January-August period from a decline of 0.5 percent in the first seven months of the year, the NBS said Sunday.

During the January-August period, real estate investment expanded 15.6 percent year on year to 4.4 trillion yuan, accelerating by 0.2 percentage points from the January-July level.

Slowing property investment and flagging exports cooled China's economic growth to 7.6 percent in the second quarter, the slowest rate since the first quarter of 2009.

Chinese authorities have moved more cautiously to address the downturn than they did during the global financial crisis of 2008.

A 4-trillion-yuan stimulus investment plan announced by the government in late 2008 pumped up the Chinese economy but also resulted in massive local government debt and set back efforts to restructure the economy toward a more consumption-driven model.

This time, China has instead cut taxes for small businesses, encouraged private businesses to invest in sectors previously closed to them and fast-tracked construction projects.

Last week, China's top economic planner approved 55 investment projects worth 1 trillion yuan (157.7 billion U.S. dollars) to build highways, ports and railways across the country.

Both Zhang and Liu said investment growth will stabilize due to the efforts, although Wang doubted that the projects will receive adequate funds and called for further monetary easing and more fiscal support.

Economic growth may slow to 7.4 percent in the third quarter and, without more aggressive policies, could fall below the government's 7.5-percent target for the year, Wang said.

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