Instant View - China July factory output growth slows to 9.2 percent

BEIJING (Reuters) - China's annual rate of factory output growth eased to 9.2 percent in July, its weakest since May 2009 and well below the 9.8 percent forecast in a Reuters poll.

Fixed asset investment (FAI) grew by 20.4 percent in the year to end-July, in line with the 20.5 percent consensus call of economists, and on pace compared with the 20.4 percent rate in the first half of the year.

FAI is a crucial barometer of economic activity in China, accounting for 54 percent of GDP in 2011.

The rate of retail sales growth in July slowed to 13.1 percent year on year from 13.7 percent previously.

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KEY POINTS:

- July industrial output up 9.2 percent on year (forecast up 9.8 percent; previous up 9.5 percent)

- Jan-April fixed asset investment up 20.4 percent (forecast 20.5 percent; previous up 20.4 percent)

- April retail sales up 13.1 percent on year (forecast up 13.7 percent; previous up 13.7 percent)

COMMENTARY:

TING LU, ECONOMIST, BANK OF AMERICA-MERRILL LYNCH IN HONG KONG:

"The focus here is on industrial production. We expect two rate cuts before the end of the year and three more RRR cuts. For the whole year, no, we don't think growth will miss the 7.5 percent mark. Growth in the second-half will be above 7.6 percent.

"It's very likely that the 9.2 percent (growth in industrial production) will be the bottom. There was a slowdown in exports. Second, there is destocking because of weakness in confidence. There may be some further slowdown in property investment, but the major driver is in the inventory."

ALISTAIR THORNTON, ECONOMIST, IHS GLOBAL INSIGHT IN BEIJING:

"The government underestimated the pace of slowdown and there needs to be more aggressive stimulating policies.

"The government has signalled that it's taking a more aggressive line on stimulus measures and we had a huge lot more activities coming through the NDRC (National Development and Reform Commission) and the local government level.

"But it's yet to feed into the real economy, which is why we are seeing such weak activities data for July.

"The government efforts will stimulate growth towards the end of the quarter. But it's clear there is significant headwind facing the economic recovery.

"It's primarily a domestic story, but clearly the external environment does not help."

(Reporting By Beijing Economics Team; Editing by Nick Edwards)