Beijing: China’s economy slowed in December, capping the weakest quarter of growth since the 2009 global recession, as the Communist leadership struggles to manage a transition to consumer-led expansion.
Industrial production, retail sales and fixed-asset investment all slowed at the end of the year, while gross domestic product rose 6.8 per cent in the fourth quarter from a year earlier. Full-year growth of 6.9 per cent, the least since 1990, was in line with the government’s target of about 7 per cent.
Downward pressure on industry threatens to spread to consumption and services — an unwelcome prospect for policy makers who must weigh the need for further monetary easing with the risk it would spur more weakness in the yuan and additional capital outflows. Another dilemma: cutting excess capacity that’s spurring deflation and weighing on old industrial drivers without triggering a deeper slump.
"China is undergoing a debt-deflation led downward business cycle," said Liu Li-Gang, head of greater China economics at Australia and New Zealand Banking in Hong Kong. "Traditional fiscal and monetary policy will only have secondary impact on the economy by mitigating the pace of the slowdown."
Industrial production posted one of the weakest gains in the past quarter century, increasing 5.9 per cent in December from a year earlier. That compared to a 6 per cent median estimate of analysts and November’s 6.2 per cent.
Retail sales increased 11.1 per cent from a year earlier, compared to the 11.3 per cent projected by economists. Fixed- asset investment excluding rural areas expanded 10 percent last year, the slowest pace since 2000.
The Australian dollar, which typically fluctuates in reaction to signs from China, Australia’s biggest export destination, fell in the 30 minutes after the GDP release, then recaptured lost ground in the afternoon. The Shanghai Composite Index closed 3.2 per cent higher after Tuesday’s data fueled speculation of increased stimulus and industrial shares rallied on prospects of state-fund buying.
Bloomberg’s monthly GDP tracker slipped to 6.69 per cent in December, from 6.85 per cent a month earlier. A measure of economy-wide inflation slipped deeper into negative territory, declining 0.5 per cent in 2015, according to another gauge.
"Deepening of deflationary pressures require more decisive reflationary policies," economists Julia Wang and LiJing at HSBC Holdings wrote in a report. "Both monetary and fiscal easing measures are needed to help support demand and anchor expectations."
HSBC forecast a quarter percentage point interest-rate cut and 100 basis point reserve ratio reduction this quarter, plus a wider fiscal deficit target for the year.
China’s top leadership has signaled in recent months it may allow some additional slowness as they tackle delicate tasks such as reducing excess capacity, but nothing that could threaten President Xi Jinping’s goal of at least 6.5 per cent growth through 2020. The world’s second-largest economy will slow to 6.5 per cent this year and 6.3 per cent next year, according to the median of economist estimates.
China’s economy is going through a “tough transition to make, but critical if growth is to be sustainable,” former United States Federal Reserve chairman Ben S. Bernanke said at a forum Tuesday in Hong Kong. “You have to have a transition to more services if you want to keep the economy growing and providing jobs.”
China’s economy is growing at two speeds, with old rust-belt industries from steel to coal and cement in decline while consumption, services and technology do better. Services accounted for 50.5 per cent of output last year.
The policy response to last year’s slowdown included accelerated monetary easing with six interest-rate cuts since late 2014 and increased fiscal spending. Through the turbulence, the central bank forged ahead with interest-rate liberalisation by removing a cap on deposit rates and won the International Monetary Fund’s approval for the yuan to enter its Special Drawing Rights basket of reserve currencies.