Published January 23, 2009

China's Q4 growth slumps to 6.8%

For the whole of 2008 growth was 9%, down sharply from 13% in 2007

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(BEIJING) China's economy expanded at the slowest pace in seven years as the global recession dragged down exports, increasing pressure for more government spending and lower interest rates to buoy growth.

Gross domestic product (GDP) grew 6.8 per cent in the fourth quarter from a year earlier, after a 9 per cent gain in the previous three months, the statistics bureau said. The figure matched the median estimate of economists.

Plummeting Chinese demand for parts and materials for exports is reverberating across Asia and the Pacific, driving Taiwan, South Korea and Australia closer to recessions and worsening Japan's slump.

'It's an astonishingly steep slowdown,' said Paul Cavey, an economist with Macquarie Securities in Hong Kong. 'We haven't yet seen all of the pain.'

The central bank may cut the key one-year lending rate by as much as 81 basis points to 4.5 per cent by the middle of the year, after 2.16 percentage points of reductions since September, Mr Cavey said. Bank reserve requirements will also decline, he said.

Industrial output grew 5.7 per cent in December from a year earlier, yesterday's data showed, close to the weakest pace in almost a decade. Inflation cooled to 1.2 per cent, the slowest in two years, giving more room for interest rate cuts. Producer prices fell 1.1 per cent.

Urban fixed-asset investment rose 26.1 per cent last year, the data showed, compared with a 26.8 per cent increase in the first 11 months.

China's economy grew 9 per cent for all of last year after a 13 per cent expansion in 2007 that pushed it past Germany to become the world's third-biggest.

Daiwa Institute of Research, JPMorgan Chase & Co and Citigroup yesterday reduced their estimates for China's growth this year. Daiwa cut its estimate to 6.3 per cent from 7.5 per cent; JPMorgan to 7.2 per cent from 7.8 per cent; and Citigroup to 7.6 per cent from 8.2 per cent.

'The international financial crisis is deepening and spreading with a continuing negative impact on the domestic economy,' said Ma Jiantang, head of the statistics bureau.

About 600,000 migrant workers flooded out of the manufacturing hub of Guangdong as work dried up last year, the local government estimated.

China's leaders 'will do anything' to maintain an economic expansion of about 8 per cent, the government's target for creating jobs, said Huang Yiping, chief Asia economist at Citigroup in Hong Kong.

China has pressured state-owned banks to increase lending, unveiled a four trillion yuan (S$880.8 billion) stimulus package, reduced export taxes and is adding support for 10 key industries. -- Bloomberg