China's Economy Slowed Sharply in 4th Quarter

BEIJING, Jan. 22 -- China's economic growth dropped sharply in the fourth quarter of last year, according to new data released Thursday, raising the specter of more job losses and worrying experts concerned about the impact on the country's stability.

China's gross domestic product from October through December grew by 6.8 percent compared with the same period a year ago, down from 9 percent in the third quarter and 10.6 percent in the first quarter, Ma Jiantang, director of the National Bureau of Statistics, said at a news conference. It was the weakest quarter since Beijing began reporting quarterly economic data in 1992.

For the year, annual growth for the world's third-largest economy slowed to 9 percent, the lowest growth in annual output in eight years and well below the 13 percent increase for 2007. The figures were not unexpected, but they show how the financial crisis is deepening across China, ending a five-year streak of double-digit growth and signaling difficult times ahead while the country waits for the benefits of a $586 billion stimulus plan to kick in.

That fourth-quarter growth fell below 8 percent was significant, according to government officials who believe growth of about that level is necessary to put China's vast labor market to work. It also came as dismal results were announced elsewhere in export-dependent Asia. Japan, the region's biggest economy, announced the sharpest ever falloff in exports, which plummeted 35 percent in December over the previous year. South Korea's economy, meanwhile, shrank 3.4 percent in the fourth quarter.

"This is the first time since 2003 that GDP growth has gone down to one digit," said Chang Xiuze of the Macro-Economics Institute of the National Development and Reform Commission in Beijing, predicting that labor disputes will increase. "The situation is really very serious."

China's economy is at the bottom of a U-shaped curve and will take six months or more to begin showing any signs of improvement, Chang said. "The economic growth rate of China cannot be too low. If it is, the government cannot solve unemployment. If the growth rate is less than 7 percent, the country cannot operate normally."

Demand for Chinese products abroad has fallen. Domestically, citizens are afraid to spend. As a result, imports and exports are both down and efforts to boost consumption seem stymied. The real estate sector is in a slump. Millions of migrant workers, on whose backs the $4.4 trillion Chinese economy rests, have already been laid off. In recent months, Communist Party officials have moved aggressively against dissent and continue to debate how to best stem rural unrest.

The speed with which the downturn has hit China has ordinary people such as car dealer Xiao Guanghua -- who owns two Renault dealerships -- reeling.

"In the first half of year, the government imposed restrictive policies to control a too-hot economy. It was hard to get loans," said Xiao, who sold about 170 cars in 2007 but only about 70 last year. "But in the second half, the financial crisis arrived and it's been one disaster after another."

The government has loosened policies and lowered interest rates, Xiao said, "but right now, ordinary people dare not to spend."

Hu Sinan, a sales manager with Wenzhou Sameway, which has three wallpaper factories and 300 workers, said profits grew every year until 2007.

"Now we are down 15 percent or about $6 million. One of our European customers went bankrupt so we lost more than $100 million because of him," Hu said. "The first half of 2008 was not too bad, so we began to expand our domestic market. But we can only move carefully, step by step."