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Silver lining seen as China growth slows

发表于 lvfengyong
China’s economy expanded 7.4 per cent in the third quarter from a year earlier, marking the seventh consecutive quarter of slowing annual growth.

But in a positive sign for the world’s second-largest economy, data released on Thursday showed signs that Chinais close to the bottom of its downturn. Investment, retail sales and industrial production all accelerated at the end of the quarter, leading Premier Wen Jiabao to declare that the worst was probably over.

“It might take another couple of quarters for growth to significantly recover, but we believe the risk for a hard landing is getting increasingly smaller,” said Lu Ting, an economist at Bank of America Merrill Lynch.

The data also showed thatChinahas made minor progress in curbing its lopsided reliance on investment, a shift that is needed to put the economy on a more sustainable footing.

Over the first three quarters of this year, consumption contributed more to the country’s growth rate than investment, building on a trend that began to emerge earlier this year. Investment still accounts for nearly half ofChina’s gross domestic product, a record high for a large economy, but it has probably peaked now that consumption is growing more quickly.

Even if the economy improves in the coming months, China is on track to register its weakest annual growth since 1999 this year because of slowing domestic investment and limp demand from leading export markets, particularly crisis-hit Europe, which has been the largest recipient of Chinese exports for years.

“In the last quarter of [2012], it is very likely that the Chinese economy will follow the trend seen in September – that is a modest recovery,” said Sheng Laiyun, spokesman forChina’s national bureau of statistics. “We have full confidence that we will achieve the full-year growth target [of 7.5 per cent].”

The latest data also showed that industrial production accelerated in September, growing 9.2 per cent from a year earlier, compared with 8.9 per cent growth in August.

Fixed-asset investment accelerated from 20.2 per cent growth in the first eight months to 20.5 per cent growth in the first nine months. Meanwhile, retail sales jumped from 13.2 per cent growth in August to 14.2 per cent in September.

The World Bank recently cut its full-year GDP growth forecast for this year to 7.7 per cent, a sharp drop from the 8.2 per cent annual growth rate it predicted in May.

The latest Chinese figure is well below both last year’s 9.3 per cent expansion and the nearly 10 per cent average growth rate notched up over the past three decades. The economy grew 7.6 per cent in the second quarter compared with a year earlier.

“Chinais experiencing a double-whammy – the growth slowdown is driven by weaker exports as well as domestic demand, in particular investment growth,” Bert Hofman, World Bank chief economist forEast Asia, said last week.

The third-quarter reading of 7.4 per cent is lower than the government’s full-year target of 7.5 per cent, but in comments published on Wednesday Mr Wen said he was sureChinawould meet the target this year. He also said there were signs that the economy could now be stabilising at lower levels.

“Exports have gradually recovered, consumption has grown steadily, price inflation has clearly receded, the job market has been very good,” Mr Wen said.

Even at its reduced pace, Chinese growth remains the envy of the developed world but the slowdown has been more pronounced and lasted longer than most analysts and investors had expected.

“This is far worse than most had anticipated at the start of 2012,” said Mark Williams, chief economist at Capital Economics. “But it is not a hard landing in terms that matter toChina’s policy makers. Slower growth does not appear to be generating significant job losses.”

Most analysts and government officials mistakenly predicted thatChina’s economy would start to accelerate in the second or third quarter of this year. The vast majority of economists now expect the economy to have bottomed out in the third quarter but few are predicting a strong recovery from the current slower pace.

“China’s growth trajectory is likely to be L-shaped,” said Barclays economist Huang Yiping. “The potential growth rate is probably already down to 7 per cent and in the near term, employment conditions and housing prices will determine the amount of flexibility in macroeconomic policy.”

The slowdown has disproportionately affected sectors related to infrastructure and investment, such as steel, construction and carmaking and that has had a knock-on effect for countries such asAustraliaandBrazilthat export the commodities needed to fuel these industries.

In the past three years, East Asia accounted for nearly half of global growth, driven mostly by a huge stimulus programmeBeijinglaunched in late 2008 to tackle the effects of the global financial crisis.

That makes the Chinese slowdown all the more significant for a global economy beset by a sovereign debt crisis in Europe and sluggish recovery in theUS.

 By Jamil Anderlini, souce:  http://www.ft.com, October 18, 2012