Beijing, December 12

China’s activity data was stronger than expected in November, with factory output growth picking up to a five-month high, signalling that a flurry of stimulus measures from Beijing may have put a floor under a fragile economy.

Still, analysts believe more policy steps are needed to weather nagging headwinds from a cooling property market, risks from high domestic debt levels, and weak global demand as financial markets brace for interest rate rises by US Federal Reserve.

“Real interest rates are still high due to falling producer prices,” Wang Jun, senior economist at the China Centre for International Economic Exchanges (CCIEE), a Beijing-based think-tank. “It’s still necessary to cut interest rates to support economic growth and combat deflation.”

Factory output grew an annual 6.2 per cent in November, data from the National Bureau of Statistics (NBS) showed, quickening from October’s 5.6 per cent and beating expectations of 5.6 per cent.

Growth in China’s fixed-asset investment, one of the main drivers of the economy, rose 10.2 per cent in the first 11 months, unchanged from the gain in January-October, and higher than an expected 10.1 per cent rise.

Retail sales grew an annual 11.2 per cent in November — the strongest expansion this year — compared with 11 per cent in October. Analysts had forecast 11.1 per cent growth in November.

“While low base could be the factor driving the headline growth, we still have to acknowledge that China’s data are illustrating signs of stabilisation, albeit at a low level,” said Zhao Hao, senior economist at Commerzbank in Singapore.

The data came after weak trade and inflation readings earlier this week, which underscored persistent slack in economy.

The world’s second-biggest economy has been hit by weak demand at home and abroad, factory overcapacity and challenges posed by its transition to a consumption-led growth model from one reliant on investments.

With the Fed poised to raise interest rates for the first time in almost a decade at next week’s review, the risk of intensifying capital outflows has added to Beijing’s policy challenge.

Premier Li Keqiang has recently pledged to step up ‘supply-side’ reform to generate new growth engines in the economy while tackling factory overcapacity and so-called zombie firms.

With its trade sector ailing, there are also signs China is ramping up efforts to send more excess production abroad with tax cuts for export sector.

China’s output of key industrial commodities including coal and steel remained weak in November amid chronic oversupply as slowing construction demand took its toll.

“Supply-side management should be supported by loose fiscal and monetary policy,” Li Huiyong, an economist at Shenyin & Wanguo Securities said.

Li said the economy faced ‘increased uncertainties’ from a cooling property market, excess factory capacity, high debt levels and Beijing’s anti-corruption drive. He expects the central bank to cut interest rates by 50 basis points in the next 12 months, on top of more cuts in bank reserve ratios.

Over the past year Chinese authorities have launched the most aggressive policy stimulus since the 2008-09 global financial crisis, including cutting interest rates six times since late 2014 and lowering bank reserve requirements.

They have also taken other steps, including an announcement on Friday to lock-in more investments as Beijing tries to put a floor under the economy. But the government has been struggling to reach its economic growth target of around seven per cent this year, which would be the weakest pace in a quarter of a century. Many analysts suspect actual growth is lower than official figures suggest.

A cooling property market has weighed heavily on China’s economy over the past year. Home sales and prices have increased in bigger cities over recent months, helped by a barrage of government measures.