Jan, Feb fig­ures show chill in econ­omy

Un­cer­tainty likely to per­sist: Ex­perts

China Daily (Canada) - - BUSINESS - By CHEN JIA chen­jia1@chi­nadaily.com.cn

The rapid de­cel­er­a­tion of China’s eco­nomic growth in­di­ca­tors in the year’s first two months shocked the mar­ket, as in­dus­trial out­put, fixed-as­set in­vest­ment and re­tail sales all dropped to un­usual lows.

Spec­u­la­tion has been wide­spread among ex­perts that eco­nomic pol­i­cy­may be eased if the down­ward pres­sure continues to threaten the govern­ment’s GDP tar­get of about 7.5 per­cent this year.

The Na­tional Bureau of Sta­tis­tics saidThurs­day that yearon-year in­dus­trial out­put growth rate slowed to 8.6 per­cent in Jan­uary and Fe­bru­ary, down from 9.7 per­cent in De­cem­ber and 10 per­cent in Novem­ber. It fell to its low­est level sinceMay 2009.

Growth of over­all fixed-as­set in­vest­ment, which is seen as the strong­est driver of the world’s sec­ond-largest econ­omy, dropped to 17.7 per­cent dur­ing the first two months, com­pared with whole-year growth of 19.6 per­cent in 2013 and 18.2 per­cent in the fourth quar­ter. It reached a 13-year low for those same months.

In the mean­time, to­tal re­tail sales in­creased by 11.8 per­cent, an eas­ing from 13.6 in De­cem­ber and 13.7 in Novem­ber, and was the slow­est pace for the pe­riod since 2004.

The above fig­ures, com­bined with ear­lier re­leased slug­gish data of ex­ports and man­u­fac­tur­ing Pur­chas­ing Man­agers In­dex, in­di­cate that the whole econ­omy may even slip be­low 7.5 per­cent for the first quar­ter, econ­o­mists.

Hong Kong’s Hang Seng In­dex re­treated 0.67 per­cent at the close af­ter ris­ing as much as 0.6 per­cent ear­lier in the day. The Shang­hai Com­pos­ite In­dex pared gains af­ter the re­ports and it closed 1.1 per­cent higher.

Bank of Amer­ica Mer­rill Lynch low­ered its fore­cast of China’s first-quar­ter GDP growth to 7.3 per­cent from 8 per­cent af­ter the re­ports.

The Min­istry of Fi­nance an­nounced on the same day that in Jan­uary and Fe­bru­ary,


to the na­tion’s to­tal fis­cal in­come ad­vanced by 11.1 per­cent, slower than 14.3 per­cent in De­cem­ber and 15.9 per­cent in Novem­ber.

XuHong­cai, a se­nior econ­o­mist at China Cen­ter for In­ter­na­tional Eco­nomic Ex­changes, a govern­ment think tank, called the eco­nomic per­for­mance in the first two months “un­usual but ac­cept­able”.

“It shows that the econ­omy will face many un­cer­tain­ties this year, and pol­i­cy­mak­ers should leave room for un­ex­pected sit­u­a­tions,” Xu said.

He ex­pected growth mo­men­tum to be weaker in the first quar­ter, but a re­turn should come af­ter April, with sta­bleGDP­growth of about 7.6 per­cent main­tained for the whole year.

“Big driv­ing forces for eco­nomic growth will come from the mar­ket’s en­doge­nous dy­namic, which will be fur­ther stim­u­lated by re­struc­ture re­forms,” Xu said. “For ex­am­ple, small and mi­cro en­ter­prises are ex­pected to re­ceive more sup­ports from cut­ting taxes. And fi­nan­cial re­form will in­ject more pri­vate cap­i­tal to help de­vel­op­ing in­dus­trial econ­omy.”

Pre­mier Li Ke­qiang ex­pressed con­fi­dence at a news con­fer­ence af­ter the close of the Na­tional People’s Congress meet­ing on Thurs­day that the na­tion will meet the flex­i­ble growth tar­get of about 7.5 per­cent this year.

In or­der to achieve the tar­get, Liu Li­gang, chief econ­o­mist in China at the ANZ Bank, said the cen­tral bank may need to cut its re­serve re­quire­ment ra­tio and ad­just mon­e­tary pol­icy to a more proac­tive stance.

But Lu Zhengwei, a se­nior econ­o­mist at In­dus­trial Bank, pre­dicted that the People’s Bank of China is un­likely to cut the RRR un­til April, as the cur­rency mar­ket liq­uid­ity is rel­a­tively suf­fi­cient.

Louis Kuijs, chief econ­o­mist in­China at Royal Bank of Scot­land, said it­won’t be nec­es­sary for the govern­ment to pur­sue ex­pan­sion­ary poli­cies even if GDP growth threat­ened to fall to be­tween 6.5 per­cent and 7 per­cent.

With a be­nign out­look sup­ported by do­mes­tic growth driv­ers and im­prov­ing global de­mand, the govern­ment can suc­ceed in cool the rise in the credit-to-GDP ra­tio while pro­tect­ing its bot­tom line on growth, he said. “Such a sce­nario would be wel­comed by fi­nan­cial­mar­kets and good for fi­nan­cial as­set prices.”

But if the down­ward pres­sures per­sists, Kuijs ex­pects the govern­ment to look for ways to sup­port growth, and the best way could be via pure fis­cal pol­icy — “with cen­tral govern­ment spend­ing ris­ing, fi­nanced by bond is­suance”, as there is not much room for mon­e­tary stim­u­lus.

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