China's December growth slowest in 2½ years

January 17, 2012

— China’s economy grew by 8.9 percent in the final quarter of last year, better than economists had predicted but still signaling that the world’s second largest economy is starting to cool. A steep year-end drop in exports and a cooling real estate market contributed to the slowdown.

Data released Tuesday by China’s National Bureau of Statistics also revealed a new milestone: for the first time, the number of city-dwellers outnumbered those in rural areas. In 2011, the latest figures show, 51.3 percent of China’s 1.3 billion lived in urban areas. The latest numbers also showed China with a floating population of more than 252 million migrant workers, and it was unclear how they were counted.

China’s economy expanded overall by 9.2 percent last year, compared to 10.3 percent in 2010. The fourth quarter growth of 8.9 percent, covering the last three months of the year, was China’s slowest quarterly growth in 2½ years.

China’s central government authorities have said the country’s 2012 growth could slow to around 8 percent.

The latest figures raised questions whether the fall-off in export orders from Europe and the continued sluggishness of the U.S. economy meant that China was in for a dramatic slowdown — a so-called “hard landing” — or whether the slowdown would be gradual and managed. The evidence from the data so far released suggested the slowing was real, though less marked than expected, but economists cautioned that more monthly data from December was needed.

“It’s very fragile,” said Patrick Chovanec, who teaches finance at Tsinghua University in Beijing. “If we’re at the beginning of a slowdown, we’re only at the very beginning.” He said the Chinese economy was still heavily dependent on investment spending to fuel growth, and now “it all depends on whether they can keep the investment boom going.”

Part of the slowing is intentional — the government has wanted to stop the economy from overheating, particularly in the red-hot property sector. After a series of new government restrictions in the fastest-growing urban property markets — including higher down payments and restrictions on multiple-home ownership — overall investment in property in December fell to 12.3 percent. from 20.1 percent in November.

Real estate accounts for 13 percent of China’s economy, and it has been growing at about 28 percent a year, a pace some economists have called unsustainable. The run-up in real estate prices has allowed for massive government spending, as provinces and localities sell land and use land as collateral for large loans, raising the specter of a debt crisis similar to the debt crisis in the United States and Europe.

But that investment spending has also been called difficult to sustain over the long term, and potentially wasteful as the country builds infrastructure and office towers that it may have trouble using. “Investment is the growth that they have and that they can command,” Chovanec said. “They hope they can keep it going as long as they can.” But, he said, the country is “creating all this capacity on the assumption that someone’s going to use it at some point.”

Government officials have said their goal is to shift China away from a growth model built on exports and government-fueled investment to one led by domestic consumption. But while consumption showed signs of increasing, according to the December retail sales figures, economists said the growth was nowhere near strong enough yet to make up for the investment spending and exports.

Government officials also have been warning for the past year that high GDP growth was less important than making sure the growth was even and that Chinese citizens enjoyed improvement in their quality of life.

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