China’s growth slows to lowest rate in three years

China’s growth has slowed to its lowest rate since early 2009, reflecting the draft felt in falling global commodity prices and profits for companies ranging from luxury retailers to heavy equipment makers.

The Chinese economy grew 7.4 per cent in this year’s third quarter over the same period a year ago, bringing GDP growth for this year to date to 7.7 per cent. It’s still above the government’s official year-end target of 7.5 per cent, but marks the seventh consecutive quarter of slowdown and the lowest rate of quarterly growth since the start of 2009.

Yet a government spokesman on Thursday pointed to several signs of easing and said the central government is confident of meeting this year’s GDP growth target of 7.5 per cent, which will be welcome news for an administration obsessed with national stability ahead of a major leadership transition that begins with next month’s 18 Communist Party Congress.

“We can see a clear sign of steady economic growth,” said Sheng Laiyun, spokesman for the National Bureau of Statistics. “There is a smaller margin of decline and some major indicators have been growing faster.”

The third-quarter slowing was a less dramatic change than in the previous quarter, when growth slowed from 8.1 per cent in the first three months of the year to 7.6 per cent. Fixed-asset investment is also up, 20.5 per cent year on year; rural and urban incomes have both increased in the year to date by 15.4 per cent and 13 per cent respectively over this time last year.

Yet imports and exports are still slowing dramatically; industrial profits are down 3.1 per cent so far this year, and the power consumption growth rate, a measure of factory activity, was up just 1.5 per cent this quarter, reflecting overstocking and plummeting prices in the steel industry.

Even retail sales, a focus in government attempts to rebalance the economy toward domestic consumption, have slowed slightly, sitting at 14.1 per cent in the first three quarters.

“We think this may be the bottom. There are some improvements in the major indicators,” said Janet Zhang, macroeconomist at research firm GK Dragonomics in Beijing. “It’s only stabilizing. The GDP growth may pick up in the fourth quarter but it will not be a sharp rebound as the economy remains very week.”

Firms as diverse as high-end clothing retailer Burberry, Coca-Cola and machinery manufacturer Caterpillar have all warned recently of falling profits, at least in part from slowing demand in China. China’s export-driven economy has suffered from a sharp drop in demand from Europe and slowing demand from the United States; expectations for massive stimulus spending from government have never really materialized, leaving many developers and manufacturers stuck with an oversupply of raw materials which has also hurt commodity prices and industrial production.

Now, with the economy starting to recover, further stimulus spending seems unlikely.

“This is far worse than most had anticipated at the start of 2012. But it is not a hard landing in the terms that matter to China’s policy makers. Slower growth does not appear to be generating significant job losses. Fears that sub-8 per cent growth might trigger social unrest have not materialized. Indeed, the forthcoming data are likely to suggest that households are clawing back some lost ground, with their incomes expanding faster than the economy, a reversal of the longstanding trend,” wrote Mark Williams, chief Asia economist at Capital Economics.

Original Article
Source: the globe and mail
Author: Carolynne Wheeler