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China Industrial Output, Retail Sales Growth Weakens

ChinaRetailSales 081215

China's industrial production and retail sales growth eased in July, providing broad signals that policies taken so far prove insufficient to achieve its GDP growth target of about 7 percent.

According to data released by the National Bureau of Statistics, industrial production expanded 6 percent year-on-year in July, slower than June's 6.8 percent increase and the 6.6 percent rise forecast by economists.

At the same time, retail sales growth slowed marginally to 10.5 percent from 10.6 percent in June. The growth rate was expected to remain unchanged at 10.6 percent.

During the January to July period, urban fixed asset investment gained 11.2 percent from the same period of last year, which was slower than the expected growth of 11.5 percent and the 11.4 percent logged during January to June period.

Real estate investment increased 4.3 percent for the first 7 months of the year compared to a 4.6 percent rise in the first half of the year.

On Tuesday, the People's Bank of China devalued the currency by the most in two decades to cushion its exports. The bank set the value of yuan at 6.2298 a dollar, 1.9 percent lower than Monday's official fixing rate.

This was the biggest one-day loss since 1994. The devaluation is seen as step towards making the exchange rate of the yuan more market determined.

The International Monetary Fund welcomed China's devaluation move, saying it would help market forces to have a greater role in determining the exchange rate. The lender noted that the exact impact will depend on how the new mechanism is implemented in practice.

Today, the central bank set its reference rate 1.6 percent lower at 6.3306 per dollar.

Julian Evans-Pritchard, an economist at Capital Economics said the changes to the reference rate primarily reflect efforts to push ahead with financial reforms rather than a concerted policy move to devalue the currency.

Giving the market a greater say in determining the exchange rate means allowing some depreciation. The economist still expects policymakers to act behind the scenes in the coming days, most likely via FX sales, to help stabilize expectations for the currency.

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