China’s economy, battered by collapsing exports, grew at the slowest pace in almost 10 years, probably marking its low point.
Gross domestic product expanded 6.1 per cent in the first quarter from a year earlier, after a 6.8 per cent gain in the previous three months, the statistics bureau said in Beijing.
A 30 per cent surge in urban fixed-asset investment in March and a jump in industrial output, both reported today, added to evidence that the government’s 4 trillion yuan ($585 billion) stimulus plan is working. Premier Wen Jiabao cautioned that while the world’s third-biggest economy is in better-than- expected shape, China is yet to establish a solid foundation for a recovery.
“They’ve stabilised the economy and now the challenge is to think about how to support consumption and how to support private investment,” said Stephen Green, head of China research at Standard Chartered Plc in Shanghai. “We’re still looking for stimulus measures to encourage consumption.”
Today’s report follows a statement from US Treasury Secretary Timothy Geithner that China isn’t a currency manipulator. His stance eases pressure on China to allow its currency to rise, which would hurt efforts to revive exports.
The yuan traded at 6.8326 against the dollar as of 5:29 pm in Shanghai, from 6.8313 before the announcement. The Shanghai Composite Index closed 0.1 per cent lower, trimming a 39 per cent gain this year, the second-best performance among 88 indexes tracked by Bloomberg.
Unemployment, overcapacity
While stimulus measures have started to produce results, China faces faltering export demand, industrial overcapacity, unemployment and weak private investment sentiment, Wen said in a statement after a meeting of China’s cabinet. A rebound in industrial-output growth lacks momentum, the premier said.
He pledged that the government would “continuously improve” stimulus measures, prepare more contingency plans for the economy, add measures to spur private investment, and stick with a “moderately loose” monetary policy.
Industrial production expanded 8.3 per cent in March from a year earlier, up from 3.8 per cent in the first two months, the statistics bureau said today. Retail sales rose 14.7 per cent.
Consumer prices fell 1.2 per cent in March from a year earlier, compared with a drop of 1.6 per cent in February. Producer prices fell 6 per cent, the most since Bloomberg data began in 1999.
China’s expansion was the weakest since the fourth quarter of 1999, according to Bloomberg data, and less than the 6.2 percent median estimate of 13 economists.
Social unrest
Growth has slowed from 9 percent for all of 2008 and 13 percent in 2007 and remains below the 8 percent level that the government deems necessary to create enough jobs.
“Exports will continue to drag on growth at least until the final quarter of the year,” said Mark Williams, an economist with Capital Economics Ltd in London. Any recovery this year, will be “lackluster at best.”
The closure of thousands of factories has cost the jobs of millions of migrant workers, raising the risk of social unrest as China approaches the anniversary of the anti-government protests and crackdown in Tiananmen Square in June 1989.
China’s expansion contrasts with recessions around the world. The Organization for Economic Cooperation and Development predicts 6.3 per cent growth for China this year, compared with a 4 per cent contraction in the US and a 66 percent decline in Japan.
Royal Bank of Scotland Group Plc raised today its forecast for China’s growth to 7 percent from a previous estimate of 5 percent, forecasting a “modest recovery” in the second half of the year. UBS AG increased its forecast to between 7 percent and 7.5 percent from a previous estimate of 6.5 percent.
The stimulus package is helping to revive growth, companies say. Anhui Conch Cement Co, China’s biggest maker of the building material, said this month that sales volume jumped 15 per cent in the first quarter from a year earlier. General Motors Corp raised its forecast for the nation’s auto sales this year after the government took steps to spur demand.
The world’s most populous nation is trying to rebalance the economy by improving welfare and health care to give Chinese the confidence to spend. The State Council issued this month an 850 billion yuan health-care plan, including building at least one hospital in every county and expanding medical insurance coverage to 90 per cent of the 1.3 billion population by 2011.
Thursday’s report contrasts with a year earlier when the economy expanded 10.6 per cent and Premier Wen said that inflation running at more than 8 per cent was the nation’s biggest problem.
