China’s GDP Grows at Slowest Pace in Almost a Decade on Exports
China’s gross domestic product, battered by collapsing exports, grew at the slowest pace in almost 10 years, probably marking the low point for the world’s third-biggest economy.
GDP expanded 6.1 percent in the first quarter from a year earlier, after a 6.8 percent gain in the previous three months, the statistics bureau said in Beijing today. The figure was below the 6.2 percent median estimate of 13 economists surveyed by Bloomberg News.
Growth in industrial production and investment accelerated, adding to evidence that Premier Wen Jiabao’s 4 trillion yuan ($585 billion) stimulus plan is working. The Shanghai Composite Index fell from an eight-month high amid speculation that Wen will have to do more to increase consumption and wean the economy from a dependence on exports.
“They’ve stabilized 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 U.S. 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.
Domestic Demand
The yuan traded at 6.8314 against the dollar as of 1:03 p.m. in Shanghai, from 6.8313 before the announcement. Shanghai’s benchmark stock index fell 0.1 percent, trimming its gain this year to 39 percent, the second-best performance among 88 indexes tracked by Bloomberg.
“While we are facing difficulty in relying on external demand, we have to turn back to domestic demand, including consumer spending and investment to sustain growth,” said statistics bureau spokesman Li Xiaochao.
Li said that while the government is ready to respond to changes in the domestic and international economies, China is yet to fully implement existing stimulus measures.
Industrial production expanded 8.3 percent in March from a year earlier, up from 3.8 percent in the first two months, and urban fixed-asset investment surged 30.3 percent, the statistics bureau said. Retail sales rose 14.7 percent in March.
“China’s demand for basic materials will continue to be driven by the effects of Chinese urbanization, infrastructure development and, increasingly, Chinese domestic demand,” said Andrew Michelmore, the chief executive officer of OZ Minerals Ltd., the world’s second-largest zinc producer.
Drag From Exports
China’s expansion lagged behind its 9 percent growth for all of 2008 and 13 percent gain in 2007. Growth also failed to reach 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 cash loans till payday. 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.
The expansion contrasts with recessions in economies around the world. The Organization for Economic Cooperation and Development predicts 6.3 percent growth for China this year, compared with a 4 percent contraction in the U.S. and a 6.6 percent decline in Japan.
In China, companies say the stimulus package is helping to revive growth. General Motors Corp. raised its forecast for the nation’s auto sales this year after the government took steps to spur demand and provided subsidies in rural areas.
Social Safety Net
The world’s most populous nation is trying to rebalance growth by improving welfare and health care to give Chinese the confidence to save less and spend more. 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 percent of the 1.3 billion population by 2011.
The government plans 20 billion yuan of subsidies this year for rural purchases of televisions and refrigerators and says it will increase welfare spending by 29 percent.
Today’s report contrasts with a year earlier when the economy expanded 10.6 percent and Premier Wen said that inflation running at more than 8 percent was the nation’s biggest problem.
Consumer prices fell 1.2 percent in March from a year earlier, compared with a drop of 1.6 percent in February. Producer prices fell 6 percent, the most since Bloomberg data began in 1999.
Lending Boom
Cooling inflation provided the People’s Bank of China with space to lower the one-year lending rate by 216 basis points to 5.31 percent last year and reserve requirements by 2 percentage points to 15.5 percent for large banks.
The bank also lifted caps on lending toward the end of 2008. As a result, new loans jumped more than six times to 1.89 trillion yuan ($277 billion) in March from a year earlier, raising concern among some economists that the cash flowing into the economy will inflate asset bubbles, and promote wasteful spending.
“The next policy move needs to be taming credit growth and local governments’ investment drive,” said Wang Tao, an economist at UBS AG in Beijing. “This is needed to reduce the risk of massive resource misallocation, asset-price bubbles and damage to the banking system.”