China warns of slower H2 industrial production

20 July 2010 09:23  [Source: ICIS news]

SHANGHAI (ICIS news)--China’s industrial production is expected to slow in the second half of the year due to a high base last year, but for the whole of 2010, overall output would still be better than expected, according the country’s Ministry of Industry and Information Technology on Tuesday.

“The full-year growth will exceed the 11% target set in early this year,” ministry spokesperson Zhu Hongren said at a press conference.

Growth in manufacturing output would likely ease to around 13% on average for the July-to-December period from 17.6% in the first half, partly due to the government’s efforts to curb energy usage of heavy industries, including petrochemicals, analysts said.

“The higher base last year after the global financial crisis is just a small factor dragging down the figure,” said Yi Lei, an analyst at Beijing-based Shanxi Securities.

“I believe China’s strong call for energy saving and emission reduction in the second half will slow down the production of heavy industries, including steel, chemicals, cement,” he added.

China had set a target to cut its energy consumption per unit of GDP by 20% over a five-year period from 2006-2010. The country had so far achieved a 16.59% cut in energy consumption, based on a government report dated 15 July.

Towards this end, China recently cancelled the export rebates on select products, including steel and some chemicals, which were deemed to be using up too much energy to manufacture.

With less than a year to go to comply with its self-imposed target, China may resort to a massive phasing out of plants that were not energy efficient, said Pei Yunpeng, a chemical analyst from Shanxi Securities.

The slowest industrial production growth this year would most probably be in September and October, analysts said, but with a strong likelihood that the government would intervene if the expansion rate eased too much.

Chinese authorities may adopt a more loose monetary policy or cut interest rates if industrial production growth falls below 10%, they said.

Analysts were expecting overall economic activities in China to cool down further the third and fourth quarters, largely due to the government’s measures to rein in credit, particularly to the property sector.

China’s GDP growth slowed to 10.3% year on year in the second quarter after registering an 11.9% expansion in the March quarter.

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By: Judith Wang
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