China’s growth slows on domestic, EU woes

BEIJING - Reuters

An elderly man stands in front of magazine posters in downtown Beijing, China. China’s economic growth falls to its lowest level in nearly three years in the first quarter. The growth slowdown raises investor concerns that a five-quarter long slide has not ended. More policy action could be needed, analysts say. AP photo

China’s economy grew at its slowest rate in nearly three years in the first three months of 2012, raising investor concerns that a five-quarter long slide has not ended and that more policy action could be necessary.

The annual rate of GDP growth in the first quarter slowed to 8.1 percent from 8.9 percent in the previous three months, the National Bureau of Statistics said April 13, as domestic demand weakened and Europe’s debt woes curbed business activity.

The GDP data headlined a flurry of indicators published April 13, showing that March industrial output expanded 11.9 percent, March retail sales rose 15.2 percent, and quarterly fixed asset investment, one of the principal drivers of China’s economy, grew 20.9 percent. They were broadly in line with the conservative expectations of investors, who have grown concerned in recent weeks that the bottoming of China’s economic cycle would extend into the second quarter of the year as it struggles to escape its worst sequential slowdown since the 2008-2009 global financial crisis.

“What’s clear is that the economy is still decelerating and the property sector is deflating,” said Yao Wei, China economist at Société Générale in Hong Kong.

Residential real estate investment in March grew at its slowest annual rate since mid-2009, when policymakers in the world’s second-biggest economy were rolling out 4 trillion yuan ($635 billion) of stimulus to escape the grip of a financial crisis that had driven global trade to a virtual halt.

Growth of 8 percent is widely regarded as the threshold at which China struggles to create enough jobs for new entrants to its 800 million-strong workforce, raising the risk of social instability, which Beijing abhors, and so increasing the likelihood of stimulus measures being rolled out.

Growth forecast
But as the government cut its official full-year growth forecast to 7.5 percent last month, there is a growing view that Beijing’s opinion of the pace that might constitute a hard landing – which remains far from the market’s consensus expectation – has moved significantly lower. That means money managers who anticipate a policy response to a fall below 8 percent would be disappointed.

However, March money supply data released on April 12 suggested that a recovery might be gaining traction, with new loans made in the month topping 1 trillion yuan ($158.55 billion) for the first time since January 2011, coming in about 25 percent ahead of expectations after two straight months of underperformance.