China growth slowest in over two decades

Forty-eight percent of respondents expected GDP growth this year to reach 6.25 per cent or less, while 35 per cent said the economy would increase between 6.25 and 6.75 per cent. Chinese shares picked up yesterday as the Asian giant confirmed that fourth-quarter growth met expectations, albeit the weakest in almost seven years, underlining the task Beijing faces in stabilizing activity while reforming its economy.

The growth was led by the service sector, which gained 8.3 percent to 34.16 trillion yuan.

Growth in retail sales – one of the few bright spots in 2015 – eased to 11.1 percent in December, less than an 11.3 percent rise expected by the market and November’s 11.2 percent. Retail sales rose 10.7 percent, down from 12 percent registered in 2014.

Policy makers are grappling with capital outflows that saw the nation’s foreign exchange reserves fall past year for the first time since 1992, ending an ascent that began under former top leader Deng Xiaoping and accelerated under presidents Jiang Zemin and Hu Jintao.

“The country’s usually-sure-handed technocrats have stumbled in the past six months as their efforts to manage China’s stock markets and currency have rattled markets around the globe”. “Weak manufacturing and construction figures have dented confidence, and despite attempts to stabilise it, the Chinese equity market continues to tumble, leading investors to question the efficacy of Chinese policymakers”.

However, he asserted that China’s government debts were not a cause of anxiety, as they accounted for less 40 per cent of the country’s GDP, well below the 60 per cent alert line that was internationally accepted.

But while the outcome is much smaller than the double-digit rates seen before the financial crisis, it is seen as the “new normal” and within Beijing’s target range as it looks to recalibrate the economy to a more sustainable model.

Viewed against an worldwide backdrop, growth of 6.9 percent was “not a low rate” and outshone other global economies, Wang said, defending it as a hard-won achievement.

Employment remained stable, with the surveyed unemployment rate in major cities standing around 5.1 percent. “There does seem to be a disconnect there between equities in mainland China and how the economy is actually performing”, said Julian Evans-Pritchard, a China economist at Capital Economics.

As it has been through the year, the services sector has held up relatively well, offsetting the deceleration in investment.

December exports shrank 1.4 percent from a year earlier, well below the ruling party’s target of 6 percent trade growth.

“The growth picture remains two-sided”, said Louis Kuijs of Oxford Economics in a report.

“Meanwhile, though, consumption continued to expand robustly, supported by solid wage growth”, said Kuijs.

“While higher consumption can support growth in the short run, there is little in economic theory that emphasises the expenditure side of GDP as a driver of growth”, HSBC’s John Zhu said in a note.

While monthly data revealed the economy is slowing it is not heading to a meltdown, economists believe.

“While direct links between the United Kingdom and China are relatively small, the spill-over effects from China’s economic slowdown, alongside continued volatility in financial markets, amplify the downside risks to growth in the UK. They need it to avoid labour market stress”. This is further complicated by the explicit goal of Chinese authorities to reduce excess capacity.

“China’s growth in 2015 was equivalent to the size of the entire economy of Switzerland or Saudi Arabia”, he said.