bodyType

customContents

entityId

entityUuid

articlePageQuery

filter

article

articleBaseAdvertisingInfoArticle

articleListArticle

articleSeoArticle

hooksArticleAcknowledgementGateOverlayArticle

hooksTrackPageViewArticle

hooksContentInterestArticle

articleLinkingDataContent

hooksAmpRedirectArticle

articleSchemaContent

liveArticle

advertZone

sentiment

contentLock

topics

types

sections

paywallTypes

createdDate

publishedDate

sponsorType

urlAlias

moreOnThisArticles

commentCount

authorLocations

authors

corrections

displaySlideShow

multimediaEmbed

printHeadline

seriesContainer

articleSpeeches

socialHeadline

headline

images

flag

firstTopic

glossary

flattenTypeIds

image

relatedLinks

relatedNewsletters

__typename

sponsor

pdfFiles

seriesReverseOrder

series

disableOffPlatformContent

published

updatedDate

summary

subHeadline

body

keywords

readingTime

customTimezone

liveContents

Tom Holland

If you're scratching your head in perplexity, don't worry. You are not the only one.
Over the last month or so, it has become increasingly clear that China's economic growth is slowing down.
In the first quarter of the year, its gross domestic product grew by 8.1 per cent in year-on-year terms.
That sounds relatively healthy, especially when you compare it to growth rates in Europe or the United States.
But look at the numbers on a quarter-on-quarter basis, and you see that in the first three months of this year China's economy only grew by 1.8 per cent compared with the previous three months.
Annualise that rate, and it's only a whisker over 7 per cent a year. Anything below that level, and most economists reckon China's economy will be suffering a hard landing.
So with April's data points indicating that activity slowed further last month, and the business media reporting that new lending has all but stalled in May, the authorities are getting jumpy.
Last week premier Wen Jiabao said the government needs to put more emphasis on supporting growth. Over the following days Beijing instructed local governments to press ahead with planned infrastructure projects, while doling out handsome subsidies for housing construction and extending fresh credit to the Ministry of Railways.
Altogether, analysts at Credit Suisse believe Beijing's fresh stimulus efforts could be worth as much as 2 trillion yuan, equivalent to more than 4 per cent of last year's GDP.
That sounds like a sensible and prudent response to the softening growth outlook, or at least it might do until you consider that the emerging slowdown is almost entirely the result of deliberate government policies aimed precisely at achieving a cooling of the economy.
It's more than two years ago now that Beijing introduced a suite of restrictions aimed at reining in China's runaway property market. To cool down price rises running at annual rates of 30 to 40 per cent in some cities, the authorities raised minimum down payments, slapped restrictions on mortgage lending, and in some cases simply banned the purchase of multiple apartments.
It took a while for these measures to take effect. But two years on, prices are now falling in most cities.
With the government continuing to insist it will not ease its restrictions, the pace of property investment has naturally begun to slow in response to the decline in prices.
In April, the year-on-year growth rate of fixed asset investment in the real estate sector abated to just 9 per cent. That compares to an annual growth rate of 28 per cent last year, and 33 per cent the year before.
That slowdown has had a big effect on China's overall growth. Last year property investment made up a quarter of all fixed asset investment. In turn fixed asset investment accounted for almost half of the country's GDP and contributed 4.9 percentage points of its 8.9 percentage point growth rate.
In other words, property investment made up around 12 per cent of China's economy, and acted as a major engine of its growth.
With other areas of investment mostly continuing to grow rapidly, it is the government-driven slowdown in property investment that explains why the contribution of fixed asset investment to overall growth in the first quarter of this year fell to just 2.7 percentage points from last year's 4.9 percentage points, and why China's overall growth rate dropped to 8.1 per cent.
What's more, this deceleration is entirely in line with official policies outlined in China's latest five-year plan, which targets an average annual growth rate of just 7 per cent, with a rebalancing of the growth mix away from investment and towards private consumption.
So it is more than a little perplexing that, having taken so much trouble to slow China's growth to a more sustainable pace, Beijing should now consider undoing its good work with a fresh round of stimulus measures.



Beijing's latest policy flip-flop: first suffocate, then stimulate