Subscribe To China Now


The Greater Bay Area and Hainan FTP: Comparing China’s...

In 2018, China released its blueprint for the development of ...

read more
View all in strategy


NZ China Council Investment Report “Understanding Chinese...

Our investment report “Understanding Chinese Investment in New Zealand” ...

read more
View all in finance


University of Auckland launches Learning Centres in China

The University of Auckland has launched two Learning Centres in collaboration with ...

read more
View all in profile


Report Explores New Zealand’s Trade Exposure to China

A new report on New Zealand-China trade patterns commissioned by the New ...

read more
View all in commentary


UMS partners with New Zealand China Trade Association (NZCTA)

United Media Solution (UMS), New Zealand’s leading Chinese digital marketing ...

read more
View all in general

Bloomberg Analysis: China's GDP Growth

China General Interest

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 closed at 6.8371 against the dollar in Shanghai from 6.8378 yesterday. The central bank has halted the currency's gains since mid-July, helping exporters by keeping down prices in overseas markets.

Timothy Geithner, President Barack Obama's nominee for Treasury secretary, said that the new U.S. administration believes China is "manipulating" its currency. His comment was in written testimony posted on the Senate Finance Committee Web site today.

Economic 'Implosion'

The "implosion" of the Chinese economy 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.

China's economy grew 9 percent for all of 2008 after a 13 percent expansion in 2007 that pushed it past Germany to become the world's third-biggest.

Shanxi Taigang Stainless Steel Co., China's biggest producer of the metal, said today that 2008 profit fell about 72 percent. China Yangtze Power Co., operator of the world’s largest hydropower project, reported a 27 percent decline.

"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.

Production, Inflation Slow

Industrial output grew 5.7 percent in December from a year earlier, today's data showed, close to the weakest pace in almost a decade. Inflation cooled to 1.2 percent, the slowest in two years, giving more room for interest-rate cuts. Producer prices fell 1.1 percent.

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 is in a recession regardless of what the highly massaged official numbers claim," Nouriel Roubini, a professor at New York University, wrote today on his Web site He said China's year-on-year growth figures are "highly misleading" because they fail to capture a sharp slowdown in output last quarter. Declines in electricity output and manufacturing suggest an overall contraction, he wrote.

Daiwa Institute of Research, JPMorgan Chase & Co. and Citigroup Inc. reduced today their estimates for China's growth in 2009. Daiwa cut to 6.3 percent from 7.5 percent; JPMorgan to 7.2 percent from 7.8 percent; and Citigroup to 7.6 percent from 8.2 percent.

Falling Interest Rates

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.

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, according to Macquarie Securities' Cavey. Bank reserve requirements will also decline, he said.

The economic slowdown is hurting China Shipping Container Lines Co., which said profit fell more than 50 percent last year, and Aluminum Corp. of China, where executives and workers will take pay cuts to preserve jobs. About 600,000 migrant workers flooded out of the manufacturing hub of Guangdong as work dried up last year, the local government estimates.

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.

Steeper Slowdown

Economic growth will weaken to 3 percent to 4 percent this quarter, the slowest since at least 1994, before stimulus measures kick in and exports start 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.

Besides trimming China's contribution to global growth, 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.

Japan said today that its shipments to China plummeted 35.5 percent in December. 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.

Falling House Prices

A sagging property market makes a quick 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 Macquarie Securities.

China Vanke Co., the country’s largest publicly traded real- estate developer, said sales fell 14 percent in December from a year earlier.

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.

Still, the government saw "positive" changes in the economy in December and can achieve its 8 percent target, the statistics bureau’s Ma said today.

Money supply and bank lending surged in December, investors' confidence improved and retail-sales growth excluding inflation accelerated, according to the official.

A planned 850 billion yuan of spending on the health-care system over three years, approved yesterday, will help to spur consumption, Ma added. Industrial-production growth was higher than economists’ estimates in December and topped November's increase, offering "a ray of light," said Ben Simpfendorfer, an economist with Royal Bank of Scotland in Hong Kong.

It may be "the twilight before the dawn," said Ma.

To contact the reporter on this story: Kevin Hamlin in Beijing on; Li Yanping in Beijing at 

Tags: recession