China’s Economy Grows 6.8%, Slowest Pace in 7 Years
By Kevin Hamlin and Li Yanping
Jan. 22 (Bloomberg) -- China’s economy expanded at the slowest pace in seven years as the global recession dragged down exports, increasing pressure for more government spending and lower interest rates to buoy growth.
Gross domestic product grew 6.8 percent in the fourth quarter from a year earlier, after a 9 percent gain in the previous three months, the statistics bureau said in Beijing today. The figure matched the median estimate of 12 economists surveyed by Bloomberg News.
Plummeting Chinese demand for parts and materials for exports is reverberating across Asia and the Pacific, driving Taiwan, South Korea and Australia closer to recessions and worsening Japan’s slump. Premier Wen Jiabao said this week that the government must work urgently this quarter to reverse the slowdown and maintain social stability amid a “very grim” outlook for jobs.
“It’s an astonishingly steep slowdown,” said Paul Cavey, an economist with Macquarie Securities in Hong Kong. “We haven’t yet seen all of the pain.”
The yuan traded at 6.8362 against the dollar as of 10:51 a.m. in Shanghai from 6.8378 yesterday. The CSI 300 Index of stocks rose 0.4 percent, taking its gain this year to about 11 percent.
The central bank may cut the key one-year lending rate by as much as 81 basis points to 4.5 percent by the middle of the year, after 2.16 percentage points of reductions since September, Cavey said. Bank reserve requirements will also decline, he said.
Economic ‘Implosion’
The economy’s “implosion” poses a threat to the Communist Party’s rule and increases the likelihood that the government will devalue the yuan, prompting a trade war, according to Albert Edwards, a London-based global strategist for Societe Generale SA.
Industrial output grew 5.7 percent in December from a year earlier, close to the weakest pace in almost a decade, today’s data showed.
Aluminum Corp. of China, parent of the country’s biggest producer of the metal, will cut executives’ pay and workers’ wages after profit slumped last year. Baoshan Iron & Steel Co., China’s biggest steelmaker, may post its first quarterly loss, according to JPMorgan Chase & Co.
Inflation cooled to 1.2 percent in December, the slowest pace in more than two years, giving more room for interest-rate cuts. Producer prices fell 1.1 percent.
‘Deepening Crisis’
The 9 percent pace of growth for 2008 compares with the 13 percent expansion that pushed China past Germany in 2007 to become the world’s third-biggest economy.
“The international financial crisis is deepening and spreading with a continuing negative impact on the domestic economy,” said Ma Jiantang, head of the statistics bureau.
Urban fixed-asset investment rose 26.1 percent last year, the data showed, compared with a 26.8 percent increase in the first 11 months.
China’s leaders “will do anything” to maintain an economic expansion of about 8 percent, the government’s target for creating jobs, said Huang Yiping, chief Asia economist at Citigroup Inc. in Hong Kong.
China has pressured state-owned banks to increase lending, unveiled a 4 trillion yuan ($585 billion) stimulus package, reduced export taxes and is adding support for 10 key industries, including tax cuts and subsidies for steel and autos.
Export Decline
China’s growth will weaken to 3 percent to 4 percent this quarter, the slowest since quarterly figures began in 1994, before stimulus measures kick in and export demand starts to revive, said Wang Qing, Hong Kong-based chief China economist at Morgan Stanley.
Exports will decline 6 percent this year, down from a 17.2 percent gain in 2008, according to Fitch Ratings. China has already stalled gains by the yuan against the dollar to aid exporters.
Timothy Geithner, President Barack Obama’s nominee for Treasury secretary, said yesterday that China’s currency manipulation was a “significant issue.”
“It’s important for the United States and for the global economy that our major trading partners operate with a flexible exchange rate system and that market forces determine the level of those exchange rates,” Geithner said.
Taiwan, Korea, Japan
Besides trimming China’s contribution to global growth, which was estimated by the International Monetary Fund at 19.5 percent in 2007, the slowdown is hurting Asia, where South Korea reported today a bigger-than-forecast economic contraction.
Taiwan’s exports to China plunged 44 percent in December, Korea’s dropped 30 percent, and those from Australia declined 25 percent, Chinese figures show. Japan reported today that its shipments to China plummeted a record 35.5 percent.
China’s own exports declined by the most since 1999, triggering factory closures and job cuts.
“Localized unrest” may rise sharply this year, said Wang Tao, China economist at UBS AG in Beijing, adding that as many as 10 million people may lose their jobs in export industries, along with another 5 million in construction.
The government has signaled that the official urban jobless rate, which doesn’t include migrant workers, may jump to as high as 4.6 percent in 2009, which would be the worst in almost 30 years.
A sagging property market makes a quick economic rebound less likely. House prices across 70 cities dropped for the first time on record in December and construction will contract 30 percent this year, according to Hong Kong-based Macquarie Securities property analyst Eva Lee.
Economic growth may weaken to 2 percent in 2009, the slowest pace in at least 30 years, according to Ryan Atkinson, chief market analyst at New York-based hedge-fund manager Balestra Capital Ltd.
“There’s an extraordinary amount of excess capacity and there’s no way the world can absorb the amount of goods they are set up to produce,” said Atkinson.
By Kevin Hamlin and Li Yanping
Jan. 22 (Bloomberg) -- China’s economy expanded at the slowest pace in seven years as the global recession dragged down exports, increasing pressure for more government spending and lower interest rates to buoy growth.
Gross domestic product grew 6.8 percent in the fourth quarter from a year earlier, after a 9 percent gain in the previous three months, the statistics bureau said in Beijing today. The figure matched the median estimate of 12 economists surveyed by Bloomberg News.
Plummeting Chinese demand for parts and materials for exports is reverberating across Asia and the Pacific, driving Taiwan, South Korea and Australia closer to recessions and worsening Japan’s slump. Premier Wen Jiabao said this week that the government must work urgently this quarter to reverse the slowdown and maintain social stability amid a “very grim” outlook for jobs.
“It’s an astonishingly steep slowdown,” said Paul Cavey, an economist with Macquarie Securities in Hong Kong. “We haven’t yet seen all of the pain.”
The yuan traded at 6.8362 against the dollar as of 10:51 a.m. in Shanghai from 6.8378 yesterday. The CSI 300 Index of stocks rose 0.4 percent, taking its gain this year to about 11 percent.
The central bank may cut the key one-year lending rate by as much as 81 basis points to 4.5 percent by the middle of the year, after 2.16 percentage points of reductions since September, Cavey said. Bank reserve requirements will also decline, he said.
Economic ‘Implosion’
The economy’s “implosion” poses a threat to the Communist Party’s rule and increases the likelihood that the government will devalue the yuan, prompting a trade war, according to Albert Edwards, a London-based global strategist for Societe Generale SA.
Industrial output grew 5.7 percent in December from a year earlier, close to the weakest pace in almost a decade, today’s data showed.
Aluminum Corp. of China, parent of the country’s biggest producer of the metal, will cut executives’ pay and workers’ wages after profit slumped last year. Baoshan Iron & Steel Co., China’s biggest steelmaker, may post its first quarterly loss, according to JPMorgan Chase & Co.
Inflation cooled to 1.2 percent in December, the slowest pace in more than two years, giving more room for interest-rate cuts. Producer prices fell 1.1 percent.
‘Deepening Crisis’
The 9 percent pace of growth for 2008 compares with the 13 percent expansion that pushed China past Germany in 2007 to become the world’s third-biggest economy.
“The international financial crisis is deepening and spreading with a continuing negative impact on the domestic economy,” said Ma Jiantang, head of the statistics bureau.
Urban fixed-asset investment rose 26.1 percent last year, the data showed, compared with a 26.8 percent increase in the first 11 months.
China’s leaders “will do anything” to maintain an economic expansion of about 8 percent, the government’s target for creating jobs, said Huang Yiping, chief Asia economist at Citigroup Inc. in Hong Kong.
China has pressured state-owned banks to increase lending, unveiled a 4 trillion yuan ($585 billion) stimulus package, reduced export taxes and is adding support for 10 key industries, including tax cuts and subsidies for steel and autos.
Export Decline
China’s growth will weaken to 3 percent to 4 percent this quarter, the slowest since quarterly figures began in 1994, before stimulus measures kick in and export demand starts to revive, said Wang Qing, Hong Kong-based chief China economist at Morgan Stanley.
Exports will decline 6 percent this year, down from a 17.2 percent gain in 2008, according to Fitch Ratings. China has already stalled gains by the yuan against the dollar to aid exporters.
Timothy Geithner, President Barack Obama’s nominee for Treasury secretary, said yesterday that China’s currency manipulation was a “significant issue.”
“It’s important for the United States and for the global economy that our major trading partners operate with a flexible exchange rate system and that market forces determine the level of those exchange rates,” Geithner said.
Taiwan, Korea, Japan
Besides trimming China’s contribution to global growth, which was estimated by the International Monetary Fund at 19.5 percent in 2007, the slowdown is hurting Asia, where South Korea reported today a bigger-than-forecast economic contraction.
Taiwan’s exports to China plunged 44 percent in December, Korea’s dropped 30 percent, and those from Australia declined 25 percent, Chinese figures show. Japan reported today that its shipments to China plummeted a record 35.5 percent.
China’s own exports declined by the most since 1999, triggering factory closures and job cuts.
“Localized unrest” may rise sharply this year, said Wang Tao, China economist at UBS AG in Beijing, adding that as many as 10 million people may lose their jobs in export industries, along with another 5 million in construction.
The government has signaled that the official urban jobless rate, which doesn’t include migrant workers, may jump to as high as 4.6 percent in 2009, which would be the worst in almost 30 years.
A sagging property market makes a quick economic rebound less likely. House prices across 70 cities dropped for the first time on record in December and construction will contract 30 percent this year, according to Hong Kong-based Macquarie Securities property analyst Eva Lee.
Economic growth may weaken to 2 percent in 2009, the slowest pace in at least 30 years, according to Ryan Atkinson, chief market analyst at New York-based hedge-fund manager Balestra Capital Ltd.
“There’s an extraordinary amount of excess capacity and there’s no way the world can absorb the amount of goods they are set up to produce,” said Atkinson.
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