Weakest Chinese GDP growth in six years stokes stimulus talk
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Version 0 of 1. Growth in the Chinese economy has dipped to its slowest in six years, prompting expectations of further stimulus measures from the Beijing leadership in order to avoid a hard landing for the world’s second largest economy. China’s annual rate of GDP growth fell to 6.9 per cent in the third quarter of the year, the weakest rate of expansion since the first quarter of 2009, when the economy grew by 6.2 per cent and Beijing turned the domestic credit taps on full blast in order to ride out the global downturn. China grew by 7.3 per cent in 2014, the slowest rate of growth since 2009. And it is forecast by the International Monetary Fund to expand by just 6.8 per cent this year, although the government has set a target of around 7 per cent. The third-quarter growth figure came in slightly ahead of City analysts’ expectations but many still said they expected further monetary and fiscal easing. “We have no doubt that fiscal easing, infrastructure investment and bank lending will all continue,” said Wei Yao of Société Générale. “We expect these measures to focus largely on shoring up domestic demand.… If downward pressures were to intensify, we expect more forceful measures,” Louis Kuijs of Oxford Economics said. The Chinese central bank has already cut interest rates five times over the past year, from 6 per cent to 4.6 per cent, in the face of flagging economic activity. The required reserve ratio on banks has also been slashed three times this year in order to pep up lending. Beijing has also announced plans to boost spending on infrastructure projects to compensate for the decline in property and manufacturing investment. World equity markets were sent into a tailspin in August on the back of panic about the fate of the Chinese economy, which is the biggest single national contributor to global economic demand. The FTSE 100 closed down 0.4 per cent yesterday while the S&P 500 in the United States opened flat. The Shanghai Composite Index was also little changed in response to the data. The broader economic strategy of the Beijing government, led by President Xi Jinping, is to rebalance from investment-led and credit-driven growth to household consumption-led growth. Yesterday’s data provided some tentative signs that this is happening. Services grew by 8.4 per cent, while industrial output growth slowed to 6 per cent. Fixed asset investment grew by 10.3 per cent over the first nine months of 2015, down from an 11.4 per cent rate of expansion in the first half and the slowest pace of growth since 2000. Consumption was responsible for just under 60 per cent of the GDP growth over the first three quarters of the year, according to the National Bureau of Statistics. Both exports and imports fell. However, the danger is that China’s consumers will struggle to fill the hole left by a rapid dwindling of investment spending growth. Many economists are doubtful about the veracity of official statistics from Beijing, suspecting that they might be upwardly biased for political reasons. “These figures need to be taken with a grain of salt,” said Julian Evans-Pritchard of Capital Economics. |