Mainland GDP growth weakens to 7-year low

PUBLISHED : Friday, 23 January, 2009, 12:00am
UPDATED : Friday, 23 January, 2009, 12:00am

Economic expansion slows to 9pc as global turmoil spreads

The growth of the mainland economy slowed sharply to 6.8 per cent in the fourth quarter of last year and 9 per cent for the full year, its weakest pace in seven years as the global recession dragged down exports, according to figures from the National Bureau of Statistics.

'The global financial crisis is deepening and spreading with continuing negative impact on the domestic economy,' Ma Jiantang, the commissioner of the bureau, told a briefing in Beijing yesterday.

Still, Mr Ma said the world's third-largest economy had shown signs of 'positive changes' last month and predicted gross domestic product would hit the government's 8 per cent growth target for this year.

GDP growth for the fourth quarter dropped from 11.2 per cent in the same period a year earlier and was significantly lower than the 9 per cent growth in the previous quarter as the full force of the global financial crisis struck home.

The deceleration dragged down annual growth to 9 per cent, totalling 30.07 trillion yuan (HK$34.13 trillion) last year. This was the slowest level since 2001 and well below the 13 per cent expansion for 2007.

Qu Hongbin, the chief China economist with HSBC Group, blamed the slowdown on collapsing exports and massive heavy industry destocking. Exports had been booming month after month by 20 to 40 per cent in recent years and accounted for a third of GDP. But they contracted in November and December as orders fell sharply from the ailing United States and European economies.

'Export growth had stayed above 20 per cent until October, but dropped off in November and December, dragging down the fourth quarter's average growth rate to a seven-year low of 4.4 per cent year on year, from 23.1 per cent in the third quarter,' Mr Qu said.

UBS Securities chief China economist Tao Wang said he downgraded his GDP growth forecast for this year to 6.5 per cent as a result of a sharper than expected slowdown in the fourth quarter of last year.

'The lower fourth-quarter growth brings down the 2009 calendar year average growth rate if we assume the same sequential growth,' Mr Wang said.

However, Mr Ma said the drop in growth would be as short-lived as the winter weather in Beijing. He cited signs of 'positive changes' in the December figures.

Outstanding local currency loans for last month expanded 771.8 billion yuan, up 723.3 billion from December 2007, according to official data.

Real retail sales growth last month edged up 0.8 percentage point from November to 17.4 per cent. Industrial output also rose, by 5.7 per cent, up 0.3 percentage point from the annual rate of November.

Mr Qu agreed, saying the December figures suggested the worst might be over for destocking in heavy industries, although the inventory adjustment had not yet run its course.

'I can responsibly tell all of you, my friends, that I am full of confidence for China's economy in 2009 and the future,' Mr Ma said.

He added that the mainland would meet its growth target of 8 per cent for this year.

Value-added industrial production last year rose 12.9 per cent. Urban fixed-asset investment grew 26.1 per cent. The consumer price index rose 5.9 per cent, compared with 2007's 4.8 per cent rise, and the producer price index rose 6.9 per cent, after a 3.1 per cent gain, according to the statistics bureau.

The GDP deceleration comes despite Beijing's launch in November of a 4 trillion yuan stimulus package and five lending rate cuts totalling 216 basis points since September.

Mr Qu said the massive stimulus, once it filtered through starting in the second quarter, would lift GDP growth to more than 8 per cent in the second half of this year. Many international institutions have forecast a lower 5 to 7 per cent growth for this year.

Mr Wang said that with additional policy measures on the way, growth could surprise on the upside, even though he also expected declining corporate profits and the risk of core price deflation.

Mr Ma said the mainland's moderately loose monetary policy was proving to be effective and the underlying fundamentals that drove mainland growth remained unchanged. He denied there had been widespread factory closures on the mainland.