China Economic Growth Slows, May Prompt Wen to Ease Policies
By Bloomberg News
Jan. 17 (Bloomberg) -- China’s economy expanded at the
slowest pace in 10 quarters as export demand moderated and a
prolonged campaign against consumer and property-price gains
cooled growth.
Gross domestic product, the value of all goods and services
produced, rose 8.9 percent in the fourth quarter from a year
earlier, the statistics bureau said in Beijing today. Growth
fell below 9 percent for the first time since mid-2009, based on
previously reported data, and compared with the 8.7 percent
median forecast in a Bloomberg News survey of 26 economists.
Industrial production in December increased 12.8 percent from a
year earlier, it said.
Premier Wen Jiabao may tilt policies toward sustaining
growth in the world’s second-biggest economy as policy makers
predict a “grim” outlook for exports and inflation concerns
diminish. Liang Wengen, China’s richest man and chairman of
equipment maker Sany Heavy Industry Co., told Wen this month
that construction-machinery demand is weak and called for an
increase in infrastructure investment.
“Economic data may worsen more sharply in coming months,
raising concerns among policy makers about growth,” Ken Peng, a
Beijing-based economist at BNP Paribas SA, said before today’s
release. “But officials will want to avoid relaxing policies
too aggressively so as not to reignite inflation or undermine
their campaign against property bubbles.”
Full-year economic growth slowed to 9.2 percent from 10.4
percent in 2010, today’s report showed. The gain in industrial
production compared with the median estimate of 12.3 percent in
a Bloomberg survey and a 12.4 percent increase in November.
Debt Crisis
China’s benchmark stock index fell the most in a month
yesterday, capping a four-day 3.5 percent decline, on concern
Europe’s worsening debt crisis will hurt exports to the nation’s
biggest market and as expectations waned of an imminent cut to
banks’ reserve requirement ratios.
The yuan dropped the most in more than two months yesterday
after Standard & Poor’s stripped France of its top credit rating
and downgraded eight other euro-area nations. Twelve-month non-
deliverable yuan forwards have traded at a discount to the
onshore spot rate since Nov. 20, apart from one day, reflecting
increased bets the Chinese currency will weaken against the U.S.
dollar as the economy cools.
Banks including BNP, Nomura Holdings Inc. and UBS AG
forecast weaker economic expansion this quarter as overseas
sales moderate further and government measures to rein in
property prices hurts demand for goods including steel, cement
and home appliances. UBS’s Hong Kong-based economist Wang Tao
estimates growth will ease to 7.7 percent, while Nomura’s chief
China economist Zhang Zhiwei forecasts 7.5 percent or lower.
Their projections were made before today’s release.
Lack of Credit
Sany’s Liang, who topped Forbes Asia’s 2011 China rich list
with an estimated wealth of $9.3 billion, was among business
leaders who met Wen during his visit to Hunan province earlier
this month. Zhan Chunxin, chairman of competitor Zoomlion Heavy
Industry Science & Technology Co., who was also at the meeting,
complained a lack of access to credit was hurting customers and
suppliers.
Fixed-asset investment excluding rural households expanded
23.8 percent last year, compared with the median 24.1 percent
estimate in a Bloomberg survey. Retail sales rose 18.1 percent
in December from a year earlier, today’s report showed.
The People’s Bank of China last month allowed banks to set
aside less of their deposits as reserves and December’s new
loans were the highest since April, signs the government is
loosening monetary policy to encourage lending even as it
maintains curbs on the residential real-estate market to bring
down home prices.
Adding Cash
Expectations of another reduction before the weeklong Lunar
New Year holiday that starts Jan. 23 are receding. The PBOC
halted sales of bills and repurchase contracts at the end of
December to add funds to the financial system. It will inject
more cash through 14-day reverse repurchase operations today and
Jan. 19, two traders who declined to be identified said
yesterday, after the seven-day repurchase rate, which measures
interbank funding availability, surged to the highest since July.
The central bank may “front-load” policy easing into the
first half, with one interest-rate cut in March and three
reductions in banks’ reserve requirements, according to Nomura’s
Zhang. Peng from BNP estimates four to five reductions in the
ratio through the year.
“Any easing won’t be as aggressive as after the 2008
global financial crisis,” said BNP’s Peng. Officials will
remain wary of inflation, which remained above the government’s
4 percent in 2011 and may rebound later this year, he said.
Biggest Risks
Consumer-price gains averaged 5.4 percent last year,
exceeding the government’s 4 percent target every month, even as
the pace slowed to 4.1 percent in December from a year earlier.
A deeper recession in Europe, which may cause a sharper
slump in demand for China’s exports, and a “disorderly
correction” in the property market are the biggest risks to the
economy this year, said Chang Jian , a Hong Kong-based economist
at Barclays Capital Asia Ltd.
The world’s largest exporter may see shipment growth halve
this year from a 20 percent pace in 2011, while property
investment, which accounts for about a fifth of the nation’s
fixed-asset spending, may expand at half last year’s rate,
according to Chang.
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