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Economy

No end in sight to China's economic slowdown

Recovery in investment unable to offset industrial output at 10-year low

An auto factory in China. Falling production in the country, including for cars, has hurt employment and consumption.   © Reuters

BEIJING -- China's economy shows no signs of bottoming out as industrial output expands at the weakest pace in a decade and the highest unemployment rate in two years prompts consumers to tighten their belts.

The Lunar New Year holiday put a damper on manufacturing in February, National Bureau of Statistics spokesman Mao Shengyong said Thursday. Production is usually still weak 15 to 20 days after the break, he said, noting that the effects were felt into March last year. This year the holiday fell on Feb. 5, 11 days earlier than in 2018.

Industrial output for the January-February period rose 5.3% on the year, but that rises to 6.1% when fallout from the Lunar New Year is factored out, Mao said. January-February figures are combined to smooth distortions from the long holiday.

Although the statistical slowdown from the Lunar New Year is a regular event in China, this year's growth rate was still the worst since the 3.8% that was recorded for January-February 2009.

The purchasing managers index dipped below 50 in February for the first time in a decade, indicating extremely sluggish output and pointing to a contraction in the wider economy.

Manufacturing figures for each product paint a more vivid picture. Production of the two pillars of Chinese industry -- cars and cellphones -- sank 15% and 12%, respectively, from a year earlier. Electricity generation rose just 3%, the smallest increase since March 2018.

Private-sector output climbed 8% and production went up 4% at state-owned enterprises but it edged down 0.3% at foreign companies. The U.S.-China trade war likely prompted companies to push up production to before the end of 2018 so as to avoid additional tariffs on exports.

The weak production is undermining employment. Urban unemployment reached 5.3% in February, a two-year high. The economy added 1.74 million jobs in January-February, 1% less than in the same period last year.

In addition to a widespread factory shutdown in Guangdong, where many exporters are concentrated, internet companies are restructuring and automation is advancing, said Zhang Liqun, a researcher at the Development Research Center of the State Council.

Annual bonuses awarded before the Lunar New Year were also 2.4% smaller this year, for an average of 7,100 yuan ($1,055), according to a private research company. Only 55% of the workforce received a bonus, down 11 percentage points from last year.

Consumers' purse strings have tightened as a result. Retail sales in January-February rose 8.2% from a year earlier, but increase has been nearly flat since December despite expanded personal income tax cuts starting in January. Auto sales continued to disappoint.

Weak consumption also may have spread to the e-commerce sector. Online sales in January-February grew only 14% this year compared with 24% growth in 2018.

Brisk investment was a bright spot. Fixed investment in January-February jumped 6.1% on the year, steadily increasing after bottoming out last summer. Infrastructure investment also recovered, climbing 4.3%, compared with 3.8% for 2018, thanks to government stimulus spending.

Steel production increased 11%, likely because of public investment. Real estate development expanded 12%, accelerating from 9.5% in 2018, buoying overall investment.

Property sales by floor area, however, shrank 4% on the year in January-February for the first fall in roughly four years.

"Real estate sales will likely decline going forward, followed shortly thereafter by a probable slowdown in development investment," said Yusuke Miura, a senior economist at the Mizuho Research Institute. "Ultimately, the economy will continue to rely on infrastructure investment."

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