Published April 17, 2009

China growth grinds to slowest pace in a decade

Q1 growth sinks to 6.1%, but late spurt points to stronger growth ahead

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(BEIJING) China's economy, battered by collapsing exports, grew at the slowest pace in almost 10 years, probably marking its low point.

There's still pain: Workers removing signs from a recently closed store in Beijing

The economy struggled out of the gate this year with its weakest quarter on record, but a pick-up in March showed that the world's third-largest economy may be on track for stronger growth in the coming months.

Gross domestic product expanded 6.1 per cent in the first quarter from a year earlier, after a 6.8 per cent gain in the previous three months, the statistics bureau said.

But a 30 per cent surge in urban fixed-asset investment in March and a jump in industrial output, both reported yesterday, added to evidence that the government's four trillion yuan (S$880.4 billion) stimulus plan is working. Premier Wen Jiabao cautioned that while the world's third-biggest economy is in better-than-expected shape, China is yet to establish a solid foundation for a recovery.

'They've stabilised the economy and now the challenge is to think about how to support consumption and how to support private investment,' said Stephen Green, head of China research at Standard Chartered Plc in Shanghai. 'We're still looking for stimulus measures to encourage consumption.'

Yesterday's report follows a statement from US Treasury Secretary Timothy Geithner that China is not a currency manipulator. His stance eases pressure on China to allow its currency to rise, which would hurt efforts to revive exports.

'We will continue to advance reform of the renminbi exchange rate formation mechanism. Our goal is to maintain the renminbi basically stable at a reasonable and balanced level,' Chinese Foreign Ministry spokeswoman Jiang Yu said in response to the report.

'This is in the interest of not only China but also the world economy,' she said, repeating Beijing's assertion that a stable yuan can serve a steadying role in volatile global financial markets.

While stimulus measures have started to produce results, China faces faltering export demand, industrial overcapacity, unemployment and weak private investment sentiment, Mr Wen said in a statement after a meeting of China's Cabinet. A rebound in industrial output growth lacks momentum, the premier said.

He pledged that the government would 'continuously improve' stimulus measures, prepare more contingency plans for the economy, add measures to spur private investment, and stick with a 'moderately loose' monetary policy.

Industrial production expanded 8.3 per cent in March from a year earlier, up from 3.8 per cent in the first two months, the statistics bureau said yesterday. Retail sales rose 14.7 per cent.

Consumer prices fell 1.2 per cent in March from a year earlier, compared with a drop of 1.6 per cent in February. Producer prices fell 6 per cent, the most since Bloomberg data began in 1999.

China's expansion was the weakest since the fourth quarter of 1999, according to Bloomberg data, and less than the 6.2 per cent median estimate of 13 economists.

Growth has slowed from 9 per cent for all of 2008 and 13 per cent in 2007 and remains below the 8 per cent level that the government deems necessary to create enough jobs.

'Exports will continue to drag on growth at least until the final quarter of the year,' said Mark Williams, an economist with Capital Economics Ltd in London. Any recovery this year, will be 'lacklustre at best'. The closure of thousands of factories has cost the jobs of millions of migrant workers, raising the risk of social unrest as China approaches the anniversary of the anti-government protests and crackdown in Tiananmen Square in June 1989.

China's expansion contrasts with recessions around the world. The Organization for Economic Cooperation and Development (OECD) predicts 6.3 per cent growth for China this year, compared with a 4 per cent contraction in the US and a 6.6 per cent decline in Japan. -- Bloomberg, Reuters, AFP