Tuesday, 20 January 2015

China posts slowest growth in 24 years, more support measures seen

BEIJING/SHANGHAI (Reuters) -
China's economy grew at its
slowest pace in 24 years in 2014
as a cooling property market
weighed on demand and is
expected to lose more
momentum this year, keeping
pressure on policymakers to
head off a sharper downturn.
But analysts said a slightly better-
than-expected performance in
the fourth quarter could temper
Beijing's policy response, if the
government and central bank
believe the strains on the world's
second-largest economy are
starting to ease.
China's economy grew 7.4
percent in 2014, official data
showed on Tuesday, barely
missing its official 7.5 percent
target but the slowest since
1990. It expanded 7.7 percent in
2013.
Fourth-quarter growth held
steady at 7.3 percent from a year
earlier, marginally better than
expected, though it cooled from
the previous three months.
Few had expected China to meet
its 7.5 percent full-year target,
but the performance was better
than feared at one point when
credit collapsed, bad loans spiked
and key activity indicators fell to
multi-year lows.
A series of modest support
measures from the government
over the year helped stave off
worries of a more dramatic
slowdown, without fueling a
sharp rise in China's mountain of
debt which the country's leaders
are trying to avoid.
"This is the best possible miss
you could have from a
messaging standpoint," said
Andrew Polk, economist at the
Conference Board in Beijing.
"The government is saying,
'we're not married to this
specific target, we missed it and
we're okay.' That seems to me a
quite positive development."
However, Polk said the figure
was difficult to square with more
negative signs emerging from
other parts of the economy.
China's property market - a major
driver of demand across a range
of domestic industries - has
proven stubbornly unresponsive
to policy support, and lending
data from the banking system
shows enduring weakness
despite policymakers' repeated
and varied attempts to boost
investment.
The weak property market and
high funding costs remain key
risks facing the economy in
2015.
Policymakers also are concerned
about the potential onset of a
deflationary cycle, aggravated by
plummeting energy prices,
industrial overcapacity and
sluggish demand.
At the same time, there may be a
looming crisis among debt-
sodden local governments which
are facing strains from sliding
property sales, on which they rely
for much of their revenue.
In another worrying sign, power
output growth in China, used by
some as a proxy for economic
performance, posted its slowest
growth rate since 1998 at 3.2
percent.
BETTER THAN EXPECTED
December data posted numerous
upside surprises after a weak
November. Factory output rose
7.9 percent versus expectations
for 7.4 percent, while retail sales
rose 11.9 percent, above
predictions of 11.7 percent.
However, growth in fixed asset
investment, a key growth driver,
eased to 15.7 percent in the
whole of 2014 from the previous
year, below forecasts for a 15.8
percent rise, hovering near a 13-
year low.
Underscoring the drag on the
economy from the housing
sector, investment growth in real
estate slowed to a five-year low
and new construction slumped,
even as sales improved at the
end of the year. [ID:nL4N0UZ1F1]
"We think (property) sales may
improve somewhat but for me,
what is important is
construction. I don't see housing
starts picking up till next year ...
given that there's a lot of
inventory," said UBS economist
Wang Tao in Beijing.
MORE EASING OR LESS?
A further slowdown in China
could hinder the chances of a
revival in global growth in 2015,
which right now is being led by
what the World Bank calls the
"single engine" of strong hiring
and activity in the United States.
With China's growth seen cooling
further to 7 percent this year or
less, according to a Reuters poll,
more support measures are still
expected, though economists are
divided over how much more will
be needed.
"The overall numbers lower the
need for further stimulus,
although there remains some
room for easing as risks are still
skewed to the downside," said
Dariusz Kowalczyk, economist at
Credit Agricole in Hong Kong.
He expected the central bank to
cut interest rates again in the
first quarter, after a surprise
move in November, and slash
banks' required reserve ratio
(RRR) by 100 basis points in the
first half of 2015 to spur more
lending.
Others, however, think Beijing
may have to get more aggressive,
even at risk of reinflating asset
bubbles, given the need to
reduce debt burdens at Chinese
companies which are inhibiting
them from fresh investments.
"I don't expect monetary policy
to accelerate growth, though"
said Wang of UBS.
"Final demand in the economy is
very weak and it's unlikely that
the corporate sector will take this
credit and invest in new projects,
so containing financial risk and
stabilizing growth is the trend
for this year."
MARKET REACTION
Chinese stock markets (.CSI300)
(.SSEC) rose more than 1 percent
after the data, after posting their
worst loss in more than 6 years
on Monday as authorities
clamped down on lending which
was being used to speculate on
stocks.
Expectations of further stimulus
made China's stocks the best
performers in the world in 2014,
with gains exceeding 50 percent.

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