China growth slows as property fears rise


China’s economy has been propped up by a surge in investment in infrastructure and real estate. (William Hong/Reuters)

China’s economic growth slowed in the first three months of this year to 7.4 percent, government data showed Wednesday, dragged down from a year earlier by a slowdown in property investment growth as concerns rise about a possible slump in the real estate market.

The news was shrugged off by financial markets and will not cause any panic in the corridors of power in Beijing just yet — the headline number was slightly better than analysts had expected and not far below an official target of 7.5 percent announced last month or the growth of 7.7 percent recorded in 2013.

There are still powerful forces underpinning China’s economy, not the least of which is steadily growing domestic consumption bolstered by rising household incomes, decent job creation, an expanding services sector and a boom in Internet commerce.

Nevertheless, concerns are mounting about China’s ability to maintain the breakneck rates of expansion that have made it the envy of much of the world, with faltering exports, slower growth in manufacturing and weaker real estate sales emerging this year.

In particular, investment growth — the mainstay of the economy since the 2008 global financial crisis — is beginning to tail off.

That, many economists say, is inevitable. With overcapacity in heavy industries such as steelmaking and shipbuilding, the government trying to rein in credit growth amid concerns about rising indebtedness, and a property market glut in some smaller cities, it is hard enough to sustain current high levels of investment without having to generate massive annual growth, said Patrick Chovanec, chief strategist for Silvercrest Asset Management in New York.

“Even if investment just plateaued at an extremely high level, that would mean a big drop in GDP growth,” he said.

“Anybody who has listened to what Chinese policymakers are concerned about knows that China faces a real economic adjustment,” Chovanec said. “If China actually pursues the reforms it has been talking about, including reining in credit, then growth is going to slow.”

Anecdotal evidence suggests that unrestrained apartment building in some smaller cities has led to a significant oversupply, with prices in some areas already beginning to fall.

Zhiwei Zhang, chief economist at the global investment bank Nomura, said in a client note that overinvestment in the property sector is the biggest risk to the Chinese economy in 2014 and 2015, adding that property investment growth is already slowing and sales are falling.

Shuang Ding, senior China economist at Citi Investment Research, said the overall growth numbers were “tolerable” and noted that jobs were being created, but he called the slowdown in the property sector “particularly striking.”

On a quarterly basis, the economy expanded just 1.4 percent in the first three months of the year, compared with 1.8 percent in the last quarter of 2013.

Although Beijing has set a growth target of around 7.5 percent this year, Premier Li Keqiang has said he can live with a lower figure provided the labor market continues to generate enough jobs — an important consideration for a government obsessed with social stability.

This month, he unveiled a “mini-stimulus” plan to prop up the economy, including tax breaks for small businesses and an acceleration of plans to invest in more roads, railways and social housing.

But last week, he emphasized that he would refrain from the sort of massive stimulus that Beijing unfurled in the wake of the global financial crisis. That, almost everyone agrees, would be a disaster, piling on more debt and meaning that the eventual adjustment would only be more painful.

“It is not that the economy can’t tolerate a further slowdown,” said Zhao Ping, deputy director of the Consumer Research Department under the Ministry of Commerce. “More worrying is that the Chinese government can’t tolerate it; their traditional mind-set is just not used to it.

“It is possible that a mini-stimulus will become a bigger one, and the central government will not stop local governments from expanding investment — which will of course achieve this year’s growth target but will be harmful for China’s long-term economic development.”

Andrew Batson at the research firm Gavekal Dragonomics said he believes the government is attempting to push through economic policy changes at a fast-enough pace to stimulate private sector investment, in a bid to transition away from overreliance on state sector investment.

But boosting private sector investment is not easy when the economy is already slowing, he wrote in a client note, adding that growth was “very unlikely” to meet the 7.5 percent target this year.

In its latest annual business climate survey, the American Chamber of Commerce in China reported last month that an economic slowdown in China had overtaken rising labor costs as the chief concern of its members.

Liu Liu contributed to this report.

Simon Denyer is The Post’s bureau chief in China. He served previously as bureau chief in India and as a Reuters bureau chief in Washington, India and Pakistan.
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