Think-tank sees little chance of rebound in industrial output growth

Weak industrial activity, hampered by overcapacity and growing inventories, will not significantly rebound in the second half of the year, the government's top economic think-tank has warned.

Year-on-year industrial output growth should remain at a slower 6 to 6.5 percent in the third quarter, and should have improved slightly to 6.5 to 7 percent in the last three months, the Chinese Academy of Social Sciences said on Thursday.

According to its official figures, output growth by all industrial companies was 6.1 percent in the first three months this year, and retreated to 6 percent in the second quarter - the lowest level since 2009, in the immediate aftermath of the global financial crisis.

Huang Qunhui, director of CASS' Institute of Industrial Economics, said downward pressure on the industrial sector remains strong in the second half, as companies continued to look for new growth drivers.

"A bottom line in terms of what we can tolerate should be clarified when making macroeconomic policies. Policy adjustments are required before this downward risk develops into a real crisis," said Huang.

From January to July, the mining industry contracted at the fastest pace of all the 41 surveyed sectors, with a 10.2 percent decline in output compared with the same period last year, the CASS report showed.

Gas production, the computer sector, and telecom-related industries increased the most, all with growth rates of more than 10 percent in the seven-month period.

Yuan Lei, a CASS economist, said positive signs have been seen, however, as industrial structures are improved.

"High energy-consuming industries contracted fast, while high-technology equipment manufacturing expanded quickly, although its overall growth rate slowed," he said.

Wang Hongyuan, chief economist at the National Information Center's Economic Forecasting Department, said that without any obvious boosts to demand, deflationary pressures are increasing across the industrial sector.

Industrial investment, which accounts for 40 percent of national fixed-asset investment, is also expected to remain weak in the coming months, as inventories remain high, the economist said.

To reduce the financing costs of indebted manufacturing companies, the People's Bank of China, the central bank, reduced interest rates by 25 basis points on Tuesday, its fifth cut since November. It also lowered the reserve requirement ratio by 50 basis points to inject liquidity into the financial system.

The government also released its flagship "Made in China 2025" economic plan in May, aimed at upgrading the quality of the manufacturing industry and improving Chinese competitiveness globally.

The plan listed 10 key development fields over the next decade, including high-end computer manufacture, numerical control machines, robotics, aerospace equipment, new-energy automobiles, and advanced railway transportation equipment.