China’s economic growth brakes to slowest pace in 3 years


This photo taken on April 12, 2012 shows a Chinese labourer working on scaffolding at a construction site in Hefei, in eastern China's Anhui province. (STR/AFP/GETTY IMAGES)
April 13, 2012

China’s roaring economy cooled the first three months of this year to its slowest pace of growth in three years because of slackening export demand and a weakened property market.

The country’s gross domestic product expanded 8.1 percent in the first quarter compared with a year earlier, China’s National Bureau of Statistics said Friday. That’s down from 8.9 percent growth in the fourth quarter last year and below many analysts’ expectations.

The figure could spook investors and prolong fears of a potential hard landing for the world’s second-largest economy after years of unsustainably high growth. China’s economic expansion has weakened every quarter since the last three months of 2010.

Economists say the slowdown could spiral out of control depending on how severe the European debt crisis becomes and on the results of the central government’s two-year campaign to deflate the nation’s property bubble.

Signs of a nationwide slowdown abound, testing the nerve of policymakers who must decide whether the economy requires more monetary easing. A higher-than-expected jump in inflation last month only makes their task harder. China spent the past year trying to temper soaring consumer prices.

Unexpectedly high bank lending last month indicates the government is already nervous about the trajectory of economic growth. New credit in March reached a 14-month high of $160 billion. China’s economy depends a great deal on how much its state-controlled banks lend each month, because it doesn’t have access to the same scope of market-based financing available in more developed countries such as the United States.

The surge in new loans could help offset the troubles already being faced by Chinese exporters and real estate developers.

Exports to Europe, the world’s biggest buyer of Chinese goods, contracted 3.1 percent in March. They grew 7.6 percent year over year in the first quarter, compared with 14.3 percent in the final three months of last year.

At the same time, import growth slowed to 6.9 percent year over year in the first quarter from 20.6 percent in the fourth quarter of last year.

The sharp decline reflects weak demand for imported raw materials as Beijing continues to keep the clamps on the nation’s property sector.

Restrictions aimed at speculators have pushed some real estate companies to the brink as prices and transactions have declined for months. One developer in the wealthy vacation city of Hangzhou recently filed for bankruptcy, further testing the government’s resolve to maintain the tightening measures.

In a quarterly report released Thursday, the World Bank in Washington urged China to loosen reserve requirements for its banks should the country need to stabilize growth.

The lending institution also downgraded its growth forecast for China to 8.2 percent this year from its January projection of 8.4 percent. That would mark the slowest pace of expansion in more than a decade.

The days of double-digit growth may be gone for good. China’s leaders are trying to rebalance the economy away from an unsustainable emphasis on exports and fixed asset investment — a strategy that led to large trade surpluses, the property bubble and soaring municipal debt to pay for things such as new roads and government buildings.

Beijing would like to rely more on domestic consumption to power the economy. But to do that would require painful reforms that target China’s entrenched interest groups. Last week, Chinese Premier Wen Jiabao unexpectedly called for a breakup of what he described as a state-banking monopoly.

In March, Wen lowered China’s annual growth target to an eight-year low of 7.5 percent, signaling a greater acceptance of slower growth if it means getting the country on a more sustainable path.

— Los Angeles Times

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