Slowdown in Chinese output but 'no sign of hard landing'

The figures, along with weaker retail sales, add to the picture of softening domestic demand painted this week by a sharp drop in import growth.

The state of China's economy will be watched keenly by Yorkshire exporters.

"Industrial output continued to ease, indicating a moderation of economic activities. But a sharp slowdown in economic growth can be ruled out, because resilient household consumption will help compensate for a drop in investment,# said Zhu Baoliang, a researcher with the State Information Centre, a government think tank in Beijing.

Annual factory output growth slowed to 13.4 percent last month from 13.7 per cent in June but beat forecasts of a 13.2 per cent rise.

Year-to-date growth in investment in fixed assets such as flats and factories in urban areas slowed to 24.9 per cent from 25.5 per cent.

However, after taking into account wholesale inflation, which dropped to 4.8 per cent in the year to July from 6.4 per cent in June, real growth on the month was steady, according to Ting Lu, an economist at Bank of America Merrill Lynch. #China's growth is slowing, but we see no sign of a hard landing,# he said.

Sheng Laiyun, a spokesman for the National Bureau of Statistics, which released the data, described the slowdown as moderate and a welcome step to a more sustainable model of growth that relies less on energy-intensive heavy industry. China this week ordered the closure of more than 2,000 obsolete, fuel-guzzling factories, steel mills and cement works.

Some economists, though, were less sanguine.

Yu Song and Helen Qiao, economists at Goldman Sachs, pointed to a moderation in annual retail sales growth to 17.9 per cent in July, from 18.3 per cent in June, that fell short of projections of an 18.3 per cent increase.

A slowdown in growth of money supply, the lubricant of every economy, was particularly alarming, they said in a note.

Annual growth in the broad M2 measure of money slowed to 17.6 per cent from 18.5 per cent in June, a rate that economists had expected to be repeated in July.

#We believe this level of broad money supply growth is clearly too restrictive as it will put more downward pressure on domestic demand growth in the near future,# Yu and Qiao said.

There are also question marks next to overseas demand.

Although this week's figures showed stronger-than-expected exports, the Federal Reserve has warned that the pace of the US recovery had slowed.