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By Alan Wheatley and Simon Rabinovitch
BEIJING, Nov 13 (Reuters) - China's industrial output slumped to a seven-year low last month as manufacturers throttled back production in response to weakness in the domestic property market and an unfolding slowdown in export demand.
Growth in factory output slowed to 8.2 percent in the year to October from September's reading of 11.4 percent, the National Bureau of Statistics said on Thursday.
"It's a horrible-looking figure. It's a shock figure," said Ben Simpfendorfer, an economist at Royal Bank of Scotland in Hong Kong.
Zhang Shiyuan with Southwest Securities in Beijing called the outcome terrible. Economists polled by Reuters had forecast a rise of 11.3 percent.
Officials had assumed that factories would crank up production again after a lull induced by Olympics-related closures and related transport and visa restrictions.
In the event, China has not escaped the impact of the deterioration in the global financial crisis since September, which has dried up credit and hit the confidence of consumers and manufacturers alike.
Benny Liu with Core Pacific-Yamaichi in Hong Kong said the weakness explained why Beijing rushed out a 4 trillion yuan ($586 billion) fiscal stimulus package on Sunday, accompanied by a shift to a moderately easy monetary policy.
"If industrial output is this low, that means the risk of a hard landing still exists," he said.
Central bank bill yields plunged on Thursday in anticipation of aggressive action by the central bank to pump cash into the banking system to help the economy, while Shanghai stocks <.SSEC> defied weakness across Asia and ended the morning 1.68 percent higher.
SLOWDOWN HITS DEMAND
The breakdown of the data was even grimmer than the headline figure. Power output in October fell 4.0 percent from a year earlier, the first decline since the Asian financial crisis apart from occasional holiday-related dips early in the year.
Electricity use is dropping as heavy industries such as steel, which are big power users, suffer disproportionately from the swoon in global demand and the woes of the real estate industry.
China's crude steel output in October dropped by 17 percent from a year earlier; cast iron output was down 16.8 percent; ferrous metals production was 5.6 percent lower.
"Steel-intensive industries are seeing a correction, quite possibly related to the downturn in housing," Simpfendorfer said.
"There is obviously some inventory correction taking place. If the fiscal stimulus package starts to get any traction it should help to stabilise the figure in the first quarter. But we can't rule out GDP growth as low as 5 percent in the first half of next year," he added.
GDP was 9.0 percent higher in the third quarter than a year earlier. In all of 2007, it was up 11.9 percent.
In another sign that the world's fourth-largest economy is slowing much more abruptly than expected, fiscal revenue in October fell 0.3 percent from a year earlier, the Ministry of Finance said on Thursday.
It was the first such decline for a non-holiday month since 1996, investment bank China International Capital Corp said.
Alert to the abrupt deterioration in the economy, the government is complementing its fiscal and monetary easing by partially reversing tax policies aimed at penalising manufacturers of low-end goods.
On Wednesday, it increased value-added tax rebates for exporters for the third time since the summer. Exporters of 3,770 types of products will benefit from the latest tax breaks, which are aimed particularly at helping labour-intensive smaller firms.
Gene Ma, an economist at China Economic Monitor, a Beijing consultancy, drew a parallel with the Asian financial crisis a decade ago.
"If we look at China as a company, we can say its balance sheet is healthier than it was in 1998, but its business model is riskier," Ma said. (Reporting by Simon Rabinovitch, Michael Wei and Langi Chiang; Editing by Jacqueline Wong and Ken Wills)