China Industrial-Output Growth Is Weakest Since 1999

By Kevin Hamlin and Li Yanping

Dec. 15 (Bloomberg) -- China’s industrial production grew at the weakest pace in almost a decade as export growth collapsed, increasing pressure on the government to do more to revive a slumping economy.

Production rose 5.4 percent in November from a year earlier, the statistics bureau said today. None of 14 economists surveyed by Bloomberg News predicted such a small increase. Output grew 8.2 percent in October.

The central bank may add to last month’s steepest interest- rate cut in 11 years to boost domestic consumption as export demand fades because of recessions in the U.S., Europe and Japan. Goldman Sachs Group Inc. last week cut its forecast for the expansion of the world’s fourth-biggest economy next year to 6 percent from 7.5 percent.

“You have weak demand everywhere,” said Wang Qian, an economist with JPMorgan Chase & Co. in Hong Kong. “There will probably be another aggressive rate cut before the end of the year.”

Output grew the least since Bloomberg data began in 1999. The yuan traded at 6.8473 against the dollar as of 10:15 a.m. in Shanghai, from 6.8458 before the announcement.

The central bank has reduced the key one-year lending rate to 5.58 percent from 7.47 percent in September and dropped quotas limiting lending by banks. Wang expects up to 54 basis points of reductions before year’s end.

Electricity output fell by 9.6 percent from a year earlier. Pig-iron production fell 16.2 percent. Raw steel declined 12.4 percent. Steel products tumbled 11 percent.

Maanshan Iron, Chalco

Maanshan Iron & Steel Co. has cut output because of tumbling demand from builders and automakers. China’s steel exports may fall next year even after the government revoked some export taxes, according to the China Iron and Steel Association.

China’s aluminum prices have tumbled 41 percent this year as slowing economic growth curbs demand, forcing Aluminum Corp. of China Ltd., also known as Chalco, to reduce production. Chinese smelters will probably post losses next year, UBS AG said Dec. 9.

President Hu Jintao visited Angang Steel Co. during a three-day visit to Liaoning Province, a center for heavy industry, the state-run Xinhua News Agency reported Dec. 14. He pledged efforts to maintain stable growth in the face of “serious challenges and difficulties from home and abroad.”

Vehicle production fell 15.9 percent and car output declined 10.1 percent.

‘Awful’ Number

“The number is quite awful,” said Kevin Lai, an economist with the Daiwa Institute of Research in Hong Kong. “Enterprises continue to run down inventories and inevitably will reduce production quite massively.”

Lai predicts two 54 basis points interest-rate cuts before the end of the year and for the portion of deposits banks must hold as reserves to fall by 4 percentage points by the middle of next year. Currently, the reserve requirement is 16 percent for the biggest banks and 14 percent for smaller banks.

China aims to boost money supply by 17 percent in 2009 and encourage lending to boost consumption and buoy growth, the State Council said Dec. 13.

The nation’s economic slowdown is deepening, with overcapacity in almost all industries, and won’t bottom out until after the first quarter of next year, two senior officials, Liu He and Li Yizhong, said Dec. 12.

Global Growth

At stake is the 60 percent share of global growth Merrill Lynch forecasts China will contribute next year if its economy expands 8.6 percent.

Exports fell last month for the first time in seven years. Uniden Corp., a Japanese maker of wireless communication gear including cordless phones, said Dec. 11 that it will eliminate 6,200 jobs in China after demand for its products fell in North America.

The government warned Dec. 10 of “increasing downward pressure on the economy” and pledged to boost spending, cut taxes and do more to create jobs to maintain social stability. The State Council last month announced a 4 trillion yuan ($584 billion) spending package to sustain growth through 2010.

“If China’s stimulus spending is implemented correctly, it will create enough growth momentum to offset the macro impact of the global slowdown,” Yu Yongding, a former adviser to the central bank, said Dec. 10. “There should be no problem for the Chinese economy to maintain growth as high as 8 percent next year.”

To contact the reporters on this story: Kevin Hamlin in Beijing at khamlin@bloomberg.net; Li Yanping in Beijing at yli16@bloomberg.net.