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China economy slowing on brakes on pollution, real estate

Robust infrastructure spending underpins growth

China's industrial production slowed to 6.2% growth in October.

BEIJING -- Chinese production, investment and consumption are slowing broadly on the back of stronger environmental and housing market regulations.

But with brisk infrastructure investment propping up the overall economy, concerns over a pronounced slowdown following last month's twice-a-decade Communist Party congress are easing.

Industrial production grew 6.2% on the year in October, 0.4 percentage point less than the September reading, the National Bureau of Statistics reported Tuesday.

With regulations tightening, output declined for items that impose a heavy burden on the environment, such as cement, coke, steel materials and nonferrous metals. The volume of electricity generation, which reflects overall production trends, also logged the slowest growth in 16 months.

Environmental authorities are ordering plant shutdowns based on on-site inspections, mainly in the north. The particularly strict factory emissions rules specify that ventilation fans must be sealed and doors must be kept shut, for example. The authorities come by daily for checks and at times install surveillance cameras.

"Unlike in the past, [the authorities] are not allowed to be lax on regulations by citing the local economy and a hit to tax revenues," said Shoji Onogi, president of the Japan-China Environmental Service Center.

Restrictions on real estate purchases in such large cities as Beijing and Shanghai since last year are another drag on the economy. The floor space of buildings sold rose 8.2% on the year for January to October of 2017, down 2.1 points from the January-September growth. The figure was down 6% on the year for October alone, sliding for a second straight month.

Houses are for living in, not speculative investment, President Xi Jinping, also the Communist Party general secretary, reiterated at the party congress. His statement dashed the hope that the real estate regulations would be eased after the congress.

Sales serve as a leading indicator of real estate prices and development. Total investment in real estate development increased 7.8% on the year for the January-October period, slower than for the first nine months of the year.

Long-term interest rates are on the rise, providing another economic headwind. The yield on 10-year government bonds reached 4% for the first time in more than three years Tuesday. Higher rates are fueled by speculation that authorities will restrict interbank funding and make it difficult for small and midsize banks to procure funds.

Mortgage rates averaged 5.22% in September, up 0.78 point in a year. They are seen rising further and thus imposing a heavy financial burden on real estate developers and households with debt.

Yet a mild economic slowdown appears to be within the top leadership's expectations, and the danger of a real economic faltering seems remote. Infrastructure investment through October shot up 19.6% on the year, maintaining high growth. And with help from brisk internet-related services, newly employed people in urban areas reached 11.91 million in the period, exceeding the annual target of 11 million. Delivery workers are particularly in high demand.

At the 2012 Communist Party congress, China set a target of doubling gross domestic product from 2010 levels by 2020. Xi did not specify a long-term growth target for after 2020 this time around. The government likely allows a certain degree of slowdown as long as employment is stable. It will likely continue to prioritize protecting the environment and curbing speculative real estate investment.

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