Workers of Commercial Aircraft Corporation of China Ltd assemble parts of a C919 aircraft in Shanghai. China's high-tech manufacturing sector is growing faster than the overall pace of manufacturing this year. [Yu Ping / For China Daily]

Rising costs, slack demand set to constrain manufacturing growth

Industrial output will maintain stable expansion in the fourth quarter, although the risk of slowing growth continues to weigh on the economy, the Ministry of Industry and Information Technology said on Friday.

"While there is growing downward pressure, the country's industrial production is improving and we estimate that growth will maintain stability in the fourth quarter," Zheng Lixin, the ministry's spokesman, told a news conference in Beijing.

Industrial output growth slumped to 6.9 percent year-on-year in August, the lowest level since the start of the global financial crisis in 2008.

Growth in industrial output rebounded to 8 percent in September, but manufacturing will continue to face strong headwinds because of the uncertain global economic recovery and volatility in China's foreign trade, Zheng said.

In the first three quarters, industrial production expanded 8.5 percent year-on-year, down by 0.3 percentage point from the first half, according to the National Bureau of Statistics.

Increasing costs, weak demand and corporate funding difficulties are the key factors holding back industrial expansion, Zheng said.

But progress in addressing the issue of excess capacity and promoting necessary mergers and acquisitions will improve the country's industrial output, he added.

The bright side is that China's high-tech manufacturing sector is growing faster than the overall pace of manufacturing. Output of the electronic manufacturing sector rose by 11.9 percent in the first three quarters and equipment manufacturing grew by 10.8 percent, according to the ministry.

Industrial output, which in China is officially called industrial added value, has been seen as an important gauge of the economy's health. China uses the figure to measure business activity of enterprises with annual turnover of at least 20 million yuan ($3.25 million).

It also has a strong correlation with GDP growth, because it accounted for 44.2 percent of GDP in the first nine months, according to official data, making it a useful leading indicator.

Chang Jian, chief China economist at Barclays Inc, said the sharp acceleration in the telecommunications and computer sector could be a strong driver of China's industrial production.

Information consumption amounted to 1.9 trillion yuan in the first three quarters, up 18 percent from a year earlier, according to the ministry.

But Zheng also warned that industrial growth is still being challenged by the risks in foreign trade and deceleration in fixed-asset investment.

The export delivery value of the industrial sector grew only 6.4 percent in the first three quarters, lower than the 8.5 percent expansion of industrial output.

Growth in fixed-asset investment also decelerated by 4.1 percentage points to 16.1 percent in the first three quarters, said Zheng.

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