-Yao Wei, a China economist at Societe Generale SA
China's industrial output, investment and retail data all surprised to the downside, building pressure on an already weakening Yuan. Industrial production rose 6% last month from a year earlier, compared with the 6.8% growth in June and undershooting even the most pessimistic forecasts of economists. Further data released by the National Bureau of Statistics showed retail sales increased 10.5% in July from the previous year, slowing from a 10.6% annual growth in June. At the same time, fixed-asset investment excluding rural households rose 11.2% in the reported month, the slowest pace since 2000.
The data reflect an economy struggling with industrial overcapacity, a property market slowdown and a volatile stock market. Producer price deflation deepened last month, while exports declined more than estimated in July. Beijing stunned the world's markets on Wednesday by devaluing the Yuan for the second day in a row, stoking fears that the world's second biggest economy is in worse shape than analysts estimated. The currency dropped to the lowest level in four years on Wednesday after the People's Bank of China set the Yuan's daily midpoint even weaker than in Tuesday's devaluation. The dramatic devaluation is likely to draw intense criticism and spark another round of currency war. The US has long accused China of keeping the Yuan artificially weak, instead of allowing it to trade freely in FX markets.
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