Beijing walks a fine line as economic growth stalls
Mixed signals on economy likely to delay decision on major monetary easing, with government opting for accelerated infrastructure spending
Weakness in the mainland economy may push Beijing to speed up infrastructure investment although analysts believe the top leadership will resist any "big bang" easing measures for now.
Despite the gloomy picture, infrastructure building accelerated slightly as a result of Beijing's policy fine-tuning, while inflation-adjusted consumption stabilised and exports have begun to show signs of gathering pace.
These mixed signals may prompt the authorities to wait another one or two months before deciding on any major monetary easing. For now, analysts expect Beijing to accelerate infrastructure investment while squeezing out excess from the property market.
President Xi Jinping on Saturday urged people to stay "cool-minded" and adapt to the "new normal" in growth. People's Bank of China governor Zhou Xiaochuan said at the weekend that short-term data fluctuations might not justify any policy shifts.
Vice Finance Minister Zhu Guangyao yesterday ruled out large-scale stimulus measures to smooth out short-term growth fluctuations as the country's basic economic situation had not changed. But Zhu told reporters after a meeting with US Treasury Secretary Jack Lew - in which Lew pressed Beijing to ease exchange rate controls and lower barriers to trade and investment - that measures would be initiated to support growth if needed.
Economic growth cooled to 7.4 per cent in the first quarter from 7.7 per cent in the previous period, but Beijing has signalled its willingness to sacrifice some growth while reforming an economic system overly reliant on investment and exports.
Louis Kuijs, the chief China economist at Royal Bank of Scotland, said: "In the coming months … we expect the current approach to macroeconomic policy - supporting growth without resorting to major stimulus - to be broadly maintained. However, growth risks remain, especially in real estate. If they materialise, we expect the government to ease policy further."
Property investment dropped to a 16.4 per cent growth year on year in the first four months from the 21.1 per cent rise a year earlier, the National Bureau of Statistics said yesterday. Fixed-asset investment growth decelerated to the slowest rate in more than 12 years in the January-April period, to 17.3 per cent, compared with the 17.6 per cent rise in the first three months and a 20.6 per cent gain in the first four months of last year.
Industrial production growth edged down to 8.7 per cent year on year last month from an 8.8 per cent growth in March. Retail sales remained lacklustre, with growth easing to 11.9 per cent from 12.2 per cent in March.
Wang Yuanhong, a senior economist at the State Information Centre, said infrastructure spending had picked up. In the first four months, infrastructure investment growth, excluding that in the power sector, was up 22.8 per cent year on year from 22.5 per cent in the first three months.
Haitong International Securities chief economist Hu Yifan said: "We expect more policies to be announced to push investment on infrastructure, including highways, subways, airports, ports, [fourth-generation] networks, smart grids and environment-related projects."