China’s economy grew 9.1 per cent in the third quarter from a year earlier, the slowest pace since 2009, driving stocks lower on concern that Europe’s debt crisis is dragging on the global recovery.
The gain was less than the median estimate of 9.3 per cent in a Bloomberg News survey of 22 economists and followed a 9.5 per cent increase in the previous three months. The statistics bureau released the data in Beijing on Tuesday.
Asia’s benchmark stock index sank after China’s growth was limited by tighter credit and weaker demand from Europe, where Germany yesterday rejected speculation that any immediate resolution of the region’s crisis is possible. A slowdown in the pace of China’s expansion, which remains five times that of the US, may help Premier Wen Jiabao to tame inflation that is above the government’s target.
“The latest developments in the euro zone have unnerved investors and many are fearful we’re going to see a repeat of the slump we saw at the end of 2008,” said Tim Condon, Singapore-based head of Asian research at ING Groep NV and a former World Bank economist. A “hard landing” for China would require a bigger “shock” to growth than is likely, he said. The Shanghai Composite Index closed 2.3 per cent lower, the biggest loss in almost a month. The MSCI Asia Pacific Index fell as much as 2.7 per cent.
FASTER OUTPUT GROWTH
Industrial production increased 13.8 per cent in September from a year earlier, the statistics bureau said. That compared with the 13.4 per cent median estimate in a Bloomberg survey and a gain of 13.5 per cent the previous month.
Concerns about China’s economy are focused on bad debt risks for banks, funding for small businesses, and the ability of local governments to repay money borrowed for infrastructure projects. China Business News reported on Tuesday that rail projects have been halted due to cash shortages and the People’s Daily reported that some road building stalled for the same reason.
“The risk of a hard landing is a distant scenario,” said Liu Li-Gang, an economist at Australia & New Zealand Banking Group Ltd in Hong Kong. HSBC Holdings Plc and Bank of America Merrill Lynch echoed that view. Barclays Capital said the nation’s full-year expansion should be about nine per cent, with growth to slow to below 8.5 per cent this quarter.
Any “outright easing of monetary policy will have to wait until inflation expectations stabilise and external demand falls sharply,” said Liu, adding that “partial easing” could include reducing reserve requirements for small and medium-sized banks.
Fixed-asset investment excluding rural households climbed 24.9 per cent in the first nine months, compared with the 24.8 per cent estimated by economists and a 25 per cent gain through August. Property investment for January-to-September rose 32 per cent, from 33.2 per cent through August.
Retail sales expanded 17.7 per cent after a 17 per cent increase in August.
Companies including BASF SE, the world’s largest chemicals company, are expanding in China as higher wages and consumption boost demand. The German company and China Petroleum & Chemical Corp this month completed an expansion of an ethylene plant in the eastern city of Nanjing.
China’s economy grew 2.3 per cent in the third quarter from the previous three months, seasonally adjusted, the statistics bureau said on Tuesday. That compared with a revised 2.4 per cent gain for the second quarter.
BALANCING ACT
Asian policy makers face a “delicate balancing act” with inflation remaining elevated while Europe’s crisis threatens growth, the International Monetary Fund said last week. German Chancellor Angela Merkel’s office yesterday curbed expectations for a breakthrough at a summit in Brussels this weekend.
China’s Xinhua News Agency reported on Tuesday that Chinese Vice Premier Wang Qishan and US Treasury Secretary Timothy Geithner discussed the global economic and financial situation and bilateral economic relations by phone. It didn’t elaborate.
China has raised interest rates five times over the past year, curbed lending and imposed limits on home purchases to rein in property and consumer prices and limit the risk of asset bubbles. Home prices gained in fewer than half of 70 cities monitored by the government in September from August as sales eased, statistics bureau data showed on Tuesday.
While inflation was more than six per cent for a fourth month in September, Deutsche Bank AG forecasts the rate will drop to four per cent — the government’s full-year target — in December.
LENDING SLOWS
China’s money supply expanded at the slowest pace in almost a decade last month and new lending was the smallest since December 2009, central bank data showed last week. A credit crunch in some parts of China prompted the State Council to this month unveil tax breaks and financial support for small businesses.
A property slump and slowing export growth are among the biggest risks, according to economists at UBS AG, Nomura Holdings Inc and Societe Generale.
A drop in land prices in cities including Beijing and Guangzhou and falling land sales presage a slowdown in property investment, according to Nomura’s Hong Kong-based economist Zhang Zhiwei. Vincent Lo, chairman of Shanghai-based Shui On Land Ltd, said last month one bank withdrew loan approvals for his company and other developers.
UBS economist Wang Tao sees a “global downturn or recession” as the main danger facing the world’s largest exporter in the next 12 months. GDP growth may drop to as low as 7.7 per cent in the first quarter of 2012 as “a sharp deceleration” in foreign demand adds to weaker domestic production, according to Wang.
EXPORT SLOWDOWN
Overseas sales rose less than expected in September as shipment growth to Europe halved and the customs bureau warned of “severe challenges” as the global outlook dims.
That may weigh on China’s currency, which gained 18 per cent against the dollar in the past four years, the most among 25 emerging-market currencies. Premier Wen pledged to maintain a “basically stable” exchange rate to protect exporters, the Xinhua news agency reported on Saturday, citing remarks he made in the southern city of Guangzhou.
China’s economy expanded 10.4 per cent last year. Growth will slow to 9.5 per cent this year, six times the pace of the US and euro area, according to International Monetary Fund estimates released last month.
