Economy in China grew in third quarter below envisioned rate

Economy in China grew in third quarter below envisioned rate

According to WSJ, the Wall Street Journal, the 6.9 % growth rate for the third quarter, announced on October 19, 2015 clouds China’s prospects for reaching the officiaChina targeted growth rate of about 7 % for the year. It also renews pressure on Beijing to enact more pro-growth measures

“Overall it is pretty disappointing,” said Société Générale CIB economist Klaus Baader, who expects fourth-quarter growth of 6.8%. “Investment continued to slow pretty sharply despite efforts by the government to support the economy. It doesn’t seem to be sufficient.”

Even in slowdown, China continues to grow at a pace that other major economies envy. China’s economy is nearly twice the size it was just six years ago, meaning at lower growth rates it remains a major engine for global consumption and production.

Speaking at an event to promote entrepreneurism in Beijing on Monday, Premier Li Keqiang said “even though it was 6.9 %, it is still a growth rate of around 7 %.” He said employment had improved and that innovation was helping the country restructure its economy.

Still, the deceleration has been faster than expected by the Chinese leadership, which at times has fumbled as it tries to restructure the economy to rely more on consumer spending and services. That effort, which economists say is key to nurturing long-term growth, is making headway. But Beijing’s appetite for overhauls appears to be slowing as it moves to shore up the economy near term.

A major challenge is demand, both at home and for exports. Xiang Yili, general manager of Wenzhou Topteam International Trade Co., which exports stationery products, said sales at the closely held company fell 10% in the third quarter year to year and will probably do the same in the fourth quarter. The company, based in China’s Zhejiang province, has bought more automation equipment to cut costs but the outlook remains difficult, she said.  “I think it could take two or three years for things to really improve,” Ms. Xiang said.

Despite the slowdown, Chinese leaders haven’t backed away from the 2015 annual growth target of about 7%. The push to reach the annual benchmark has renewed attention on the quality of Chinese statistics, adding to long-standing questions over Beijing’s methodology and whether the results are subject to political pressure.

The National Development and Reform Commission, China’s top planning agency, recently defended the accuracy of official data, saying that claims of inflated growth were “logically wrong” and “unreliable.” Much of China’s growth now comes from services, which aren’t as well reflected in such traditional measures as industrial production, electricity use and freight rates, it said in a recent online statement. In a separate statement, the agency said the government has plenty of options to meet the growth target.

Beijing has approved more than 200 rail, highway, energy and sewer projects since January worth more than 1.8 trillion yuan ($283.8 billion) and urged banks to step up lending for infrastructure. Strong loan growth in September bolstered signs that the government-orchestrated spending campaign is starting to gather momentum.

China’s fiscal spending surged 26.9 % from a year earlier to 1.78 trillion Yuan in September, it said on October 19, 2015. Chinese leaders are also likely to heap more pressure on local officials—some of whom were punished in recent months for what officials called “laziness” and inaction—to fully spend their budgets and fast-track infrastructure projects.

China’s third quarter featured several policy missteps that dented growth, rattled global markets and lowered confidence in Beijing’s economic management. The government botched a rescue of the stock markets, which fell 29 % during the quarter before partially recovering this month, and announced a surprise devaluation of the currency—a move that global investors saw as a sign China’s economy was struggling. UBS estimates that the slumping stock market will shave as much as 0.5 percentage point from growth in the second half.

The Chinese economy has been responsible for roughly one-third of world growth over the past seven years. This month, the International Monetary Fund lowered its 2015 global growth forecast to 3.1 % from its 3.3 % estimate in July, citing China as well as weakness in Europe and Japan and the slowdown in countries producing commodities.

Overall, China’s economy remains hobbled by hefty debt, overbuilding in housing and excess manufacturing capacity. The manufacturing sector, the world’s largest, has seen slumping profit and 43 straight months of deflation.

The struggles of the real estate sector will subtract an estimated 1.5 percentage points from growth this year, according to UBS. While property sales have picked up recently in some parts of the country, a huge number of unsold homes in smaller cities remains, leaving developers reluctant to invest and buyers waiting for further price reductions.

China’s industrial production grew by a disappointing 5.7 % year on year, according to the National Bureau of Statistics. That was lower than the 5.9 % growth expected. Fixed asset investment came in below expectation at 10.3% suggesting that government measures to support economic activity haven’t gained sufficient traction. Retail matched expectations with a 10.9 % growth rate.

www.wsj.com


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