Further easing seen amid slowdown of trade and FDI catalysts
The mainland's economic output in the past 12 months grew at its slowest pace for six years, confirming increasingly gloomy forecasts.
The figures fuelled concerns about the prospects for achieving reform targets as the country faces a crucial year restructuring its financial and industrial frameworks.
The country's gross domestic product grew 8.8 per cent year-on-year to 7.48 billion yuan (about HK$6.96 billion). This is down from 9.7 per cent last year and 10.5 per cent in 1995, the State Statistical Bureau (SSB) said yesterday.
China has recorded an average annual growth rate of 12 per cent since 1991.
The economy is expected to ease further as its two leading economic stimulants - foreign direct investment and exports - look set to slow significantly next year, Hong Kong-based economists said.
'The economy could even dip below 8 per cent next year as Beijing is battling with industrial over-capacity and sluggish consumer spending,' DBS Securities senior economist Chu Siu-wah said.
The economy grew by about 8.2 per cent in the fourth quarter of this year, slightly up from 8 per cent in the third quarter, according to the bureau.
Mr Chu and other economists expected Beijing to cut interest rates again next year as well as boosting government spending to reflate the economy.
The benchmark retail price index rose 0.8 per cent, down from 6.2 per cent last year, while the consumer price index, which includes the volatile service sector, rose 2.8 per cent this year, against an 8.3 per cent rise last year.
This year, growth in consumer spending and fixed-asset investment both slowed from last year's level.
Consumer sales rose 11.6 per cent to 2.72 trillion yuan, down from a growth of 19.4 per cent last year, while fixed-asset investment rose 10.1 per cent to 2.53 trillion yuan, down from 18.2 per cent one year ago.
This slowdown caused a sharp rise, of 13 per cent year-on-year, in stocks of industrial goods to 609.2 billion yuan at the end of last month and brought the number of urban workers laid off this year to 12 million, about half of whom have found new jobs.
Bureau officials shrugged off the lower than expected economic growth rate, arguing the mainland would be able to post another year of high growth and low inflation despite a slowdown in export growth and foreign investment.
They said the regional currency crisis would cut China's export growth and inward investment next year but the country would be able to repeat this year's level of growth without recourse to drastic measures such as a devaluation.
A growth rate of 8.8 per cent should not be considered low, said chief economist at the bureau, Qiu Xiaohua.
'Next year we do not need too many stimulative measures. There is absolutely no need to devalue the yuan. It is very advantageous to us to keep it stable.' However, the sharp devaluation of Asian currencies means the mainland will not be able to repeat this year's golden trade performance, with exports up 20 per cent to US$180 billion and imports up 1 per cent to $140 billion. This year the country posted a record trade surplus of $40 billion.
But Mr Qiu said China would still enjoy stable export growth next year because it had a wider range of exports and markets than its Asian competitors and its labour costs remained lower.
SSB spokesman Ye Zhen said the regional currency crisis would make foreign investors more cautious about Asia as a whole and could affect the inflow of capital into China.
'But the investment environment here has improved, investors remain optimistic about our growth and our huge market potential,' he said. 'Foreign investment in 1998 will still maintain a high level.' Foreign investment including loans amounted to $62 billion this year, up 13 per cent from a year earlier.
Actual foreign direct investment rose about 3 per cent to about $43 billion this year although contracted investment in the first 11 months fell 27.14 per cent to $48.46 billion.
