China’s economy sees weak start to 2015, spurring calls for more policy easing
Industrial output grew 6.8 per cent in the January-February period from a year earlier, the worst since December 2008
Mainland China’s economy saw a weak start with industrial output, retail sales, and investment growth posting multi-year lows and all missing forecasts, fuelling calls for the government to ease policy further to spur demand.
The downbeat activity suggested that recent cuts in interest rates and banks’ reserve requirement ratio have failed to bolster sluggish demand as deflationary pressures and overcapacity curbed corporate expansion.
However, analysts expect infrastructure investment will be accelerated from this month as the government seeks to avoid any risks of a hard landing in the economy.
“The mix of the real activity indicators suggests the effects of monetary policy easing effort so far has remained limited,” said Liu Li-Gang, chief economist of Greater China at ANZ Bank.
Liu predicted that gross domestic product in the first quarter may grow by less than 7 per cent in the first quarter, after easing to a 24-year low of 7.4 per cent in 2014.
Industrial output grew 6.8 per cent in the January-February period from a year earlier, the worst since December 2008, data from the National Bureau of Statistics showed. The pace was below market consensus for 7.7 per cent growth.
Fixed-asset investment rose 13.9 per cent in the first two months, below the 15.0 per cent expectation and compared with a gain of 15.7 per cent in 2014 as a whole.
Property sales slumped 15.8 per cent during the period, a major drag on investment and spending.
Liu said that “China needs to engage into more aggressive policy easing, and we see that the reserve requirement ratio cut will be imminent.”
The People’s Bank of China cut benchmark interest rates for the second time in three months on March 1. Last month, it also trimmed banks’ reserve requirement ratio by 50 basis points to increase liquidity and combat capital outflow pressures.
The bureau publishes only combined January-February data in a bid to eliminate any distortions caused by the timing of the Lunar New Year holiday, which began on January 30 last year but February 18 this year.
Retail sales climbed 10.7 per cent in the January-February period from a year earlier, after rising 11.8 per cent a year earlier.
However, analysts say more infrastructure projects are expected to be launched from March. Premier Li Keqiang has pledged to keep economic growth steady, targeting a 15 per cent growth in fixed-asset investment this year.
“Monetary policy is likely to shift to a looser tone from neutral starting from the second quarter,” Steven Zhang, vice president and a senior economist at Morgan Stanley Huaxin Securities, told South China Morning Post. “If the economic growth loses speed, there’s no way to talk about reform.”
The leadership has vowed to further cut outdated and polluting plants to save the environment, speed up industrial upgrading, and reform the imbalanced fiscal and financial system.
The upcoming new projects, including high-speed rails and nuclear power stations, would help sustain China’s long-term economic growth, Zhang said.
The National Development and Reform Commission was reported to have approved 7 trillion yuan (HK$8.8 trillion) of infrastructure projects for 2015.
