China's Economy Grows 9%, Slowest Pace in Five Years (Update2)
By Kevin Hamlin and Li Yanping
Oct. 20 (Bloomberg) -- China's economy, the biggest contributor to global growth, expanded at the slowest pace in five years as the financial crisis cut demand for exports.
Gross domestic product rose 9 percent in the third quarter from a year earlier, the statistics bureau said in Beijing today. That was less than any of the 12 estimates in a Bloomberg News survey and the 10.1 percent gain in the previous three months.
The fifth quarter of slowing growth may exacerbate declines this year in iron ore, copper and oil prices and undermine demand for exports within Asia, where economies are already contracting. The cabinet announced yesterday tax cuts for exporters and increased infrastructure investment and the central bank may be poised to cut interest rates for the third time this year.
``This will shake confidence and underscores that no one is immune,'' said Ben Simpfendorfer, an economist with Royal Bank of Scotland Plc in Hong Kong. He predicts three more rate cuts by the middle of next year and a further easing of lending restrictions.
Inflation cooled to 4.6 percent in September, the slowest pace since June 2007, on easing commodity prices.
The CSI 300 Index of stocks fell 0.3 percent as of the 11:30 a.m. trading break in Shanghai. The yuan traded at 6.8295 against the dollar as of 11:44 a.m. from 6.8296 before the data was released.
Spreading Crisis
The economists' median estimate was for a 9.7 percent expansion. Growth is slowing across Asia, where Japan's economy shrank in the second quarter and Singapore has tumbled into a recession.
Financial market turmoil and a global slowdown ``have started to have a negative impact on China's economy,'' Li Xiaochao, a statistics bureau spokesman, said at a briefing. ``The subprime crisis that broke out last year in the U.S. is still spreading and deepening and has caused a global financial crisis.''
China's economic expansion was the weakest since the second quarter of 2003, when growth slumped because of the severe acute respiratory syndrome, or SARS, epidemic.
The contribution of trade to growth halved to 1.2 percentage points in the first nine months from a year earlier, the statistics bureau said. Export growth may slow ``substantially,'' Li said.
Investment, Output
Urban fixed-asset investment climbed 27.6 percent in the first nine months from a year earlier, after a 27.4 percent increase through August, today's data showed.
Industrial production rose 11.4 percent in September, the slowest pace in more than six years excluding seasonal distortions, on weaker export orders and factory closures for the Olympic Games.
Retail sales rose 23.2 percent last month from a year earlier, matching the gain in August and close to the fastest pace in at least nine years.
Urban disposable incomes for the first nine months rose 14.7 percent to 11,865 yuan ($1,737) from a year earlier. Rural cash incomes climbed 19.6 percent to 3,971 yuan. Those numbers were boosted by inflation.
The State Council yesterday cited slower growth in fiscal revenue and company profits and ``volatility and sluggishness'' in stocks as signs of the effects of the global crisis.
Demand for Steel
Rio Tinto Group, the world's second-largest aluminum producer, last week flagged ``significantly weaker'' demand for the metal in China. Prices for Chinese imports of iron ore also fell to a 19-month low on cooling demand from steelmakers.
About half of China's toymakers have shut down this year, with 7,000 workers losing their jobs in factory closures this month by Smart Union Group Holdings Ltd. in Guangdong province, state media say.
Export growth may plummet from 22 percent in the first nine months of this year to ``zero or even negative growth'' in 2009, according to Stephen Green, head of China research at Standard Chartered Bank Plc in Shanghai.
The central bank has stalled gains by the yuan against the dollar since mid-July, protecting jobs in export industries.
Weakness in the property market is also a threat. Home sales by volume plunged 55.5 percent and 38.5 percent in Beijing and Shanghai in the first eight months from a year earlier, the official Xinhua News Agency reported, citing the China Real Estate Association.
The State Council said yesterday that it would increase the supply of low-cost housing and reduce property transaction fees.
Slumping Stocks
The CSI 300 Index of stocks has fallen 66 percent this year.
``The panic in the stock market has spread to the property market,'' said Sherman Chan, a Sydney-based economist at Moody's Economy.com. ``Declines in asset prices make people feel less wealthy and they will cut back on consumption and then investment growth will slow.''
A fiscal surplus and a world record $1.9 trillion of currency reserves allow the government to step up spending.
The International Monetary Fund estimated this month that China's economy may expand 9.3 percent next year compared with growth of 0.1 percent in the U.S., 0.2 percent in the euro area, and 0.5 percent in Japan. China was the biggest contributor to global growth last year, according to the organization.
``In the past China has been successful in responding quite quickly to increase spending, particularly on infrastructure, to offset the decline in export growth,'' Charles Collyns, the IMF's deputy director of research, said Oct. 8.
Easing inflation cleared the way for two interest-rate reductions in a month, the latest on Oct. 8, when the U.S. Federal Reserve and five other central banks also made cuts in an emergency bid to thaw credit markets.
The nation needs ``flexible and prudent'' economic policies to promote steady and rapid growth, the statistics bureau's Li said.
Producer prices rose 9.1 percent last month after the 10.1 percent gain in August that was the biggest since 1996.
To contact the reporter on this story: Kevin Hamlin in Beijing on [email protected]; Li Yanping in Beijing at [email protected]
Last Updated: October 20, 2008 00:07 EDT
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