China Industrial Production Growth Slumps to Six-Year Low

China's Industrial Production Growth Slowed to Lowest Level Since 2008 Global Financial Crisis

 Updated Sept. 13, 2014 5:52 a.m. ET

China's industrial production rose 6.9% in August compared with a year earlier. Agence France-Presse/Getty Images

BEIJING—China's economic engine sputtered in August as industrial production growth slowed to its lowest level since the 2008 global financial crisis, according to data released Saturday, increasing the chance that Beijing will step up stimulus measures to bolster the world's second-largest economy.

Economists said the sharp deceleration in industrial output, along with weaker fixed-asset investment, retail and real estate sales data, is likely to rattle regional stock markets Monday as Beijing struggles to reach its annual 7.5% economic-growth target in a nation where hitting benchmarks remains important.

"This figure is a bit shocking," said ANZ economist Liu Li-Gang. "If we have another month of low IP growth, the third-quarter GDP figure could be at most 7%."

Data came in below a median forecast of 15 economists polled by The Wall Street Journal. Value-added industrial output grew by 6.9% in August year -over-year, down from the 9.0% level in July, the National Bureau of Statistics said Saturday. It is the weakest growth seen since December 2008.

Fixed-asset investment in nonrural China rose 16.5% year-over-year in the January-August period, slower than the 17.0% increase recorded during January-July.

Retail sales expanded 11.9% year-over-year last month, down from the 12.2% year-over-year level in July.

"Our sales have not been very good lately," said Zhang Guangwei, 31, a manager at an electronics store in Beijing. "I don't know too much about the economy, but things seem weaker."

And the real-estate industry continued to slump despite moves by more than 30 cities to relax purchase restrictions, with housing sales declining during the first eight months of 2014 by 10.9% to 3.43 trillion yuan ($559 billion) as developers fought bulging inventories, reluctant lenders and fickle buyers.

"Late last year, we bought a small apartment in Dongcheng district near a good primary school, but the price has dropped a lot since then," said Xu Jiangyuan, 33, a saleswoman at a Beijing travel agency. "Home prices will definitely drop further."

Saturday's weak economic data—including news that August electricity output fell 2.2%—suggest that earlier government stimulus measures lack staying power. "The economy is losing steam very quickly in August," said Macquarie GroupMQG.AU +0.98% economist Larry Hu. "Previously when they stimulated the economy, private companies followed, leading to a restocking cycle. But this time, the private sector is so cautious."

While Beijing remains outwardly confident that economic growth prospects are on target, more weakness in September and October—particularly in the property market—could prompt planners to shelve their targeted stimulus approach in favor of a more broad-based stance, some economists said.

This week, Premier Li Keqiang told a World Economic Forum meeting in Tianjin that China would avoid printing money, continue its focused spending on rail, energy and public housing projects and maintain its targeted monetary-easing program for first-time home buyers and small companies.

"The IP number is a surprise because Premier Li talked in Tianjin about a quite stable situation," said Mizuho economist Shen Jianguang. "I think, very soon, they're reaching a moment of truth. If they don't ease, the economic deceleration will come much faster."

Planners in China's top-down government have more tools at their disposal—including, for instance, telling banks and state-owned companies what to do—than their counterparts in market economies. They're also helped by weak inflation, which eased to a four-month low in August.

If Beijing holds to its targeted stimulus approach in its bid to shrink bad loans and pare industrial overcapacity, it could ramp up spending on public housing and transport, cut income-tax rates and mortgage-interest rates for first- and second-time home buyers and reduce property stamp-tax duties, economists said.

The statistics bureau can also change the way GDP figures are calculated—something reportedly under discussion—to give more weight to corporate intellectual property and spending on research and development, thereby boosting the investment component of nominal economic growth.

If planners decide these still aren't enough, economists added, they could introduce a broad interest-rate cut or wholesale cut in the amount that financial institutions are required to keep on reserve with the central bank.

"If the slowdown continues for another one or two months, I think they will not stay" with targeted stimulus, said HSBC HSBA.LN +0.46% economist Ma Xiaoping.