China’s economy slows in the third quarter
China’s economy expanded in the third quarter at its slowest pace in two years, a sign that Beijing’s inflation-fighting efforts are reining in growth.
The country’s gross domestic product grew 9.1% compared with the same period last year, China’s National Bureau of Statistics said Tuesday. That was down from 9.5% in the previous three months and 9.7% in the first quarter.
Third-quarter growth was slightly below economists’ forecasts. The government has been tightening bank credit to tame inflation and deflate a worrisome housing bubble. Policymakers say China needs slower and more sustainable growth after record amounts of lending in 2009 and 2010 sparked an explosion of debt and rising prices.
The government now faces the risk of tightening the economy too much and triggering a so-called hard landing. Worsening economic conditions in Europe and the U.S. make that task even harder because of the threat of declining demand for Chinese exports.
“Growth has come in lower than market expectations, but we remain of the opinion that the Chinese economy continues to chug toward a soft landing,” analysts at IHS Global Insight wrote Tuesday.
Investors have already shown diminishing faith in shares of Chinese firms. The Hang Seng China Enterprises Index of Chinese stocks has been one of the worst-performing benchmark indexes, sinking 20% for the year before recovering slightly this week. The MSCI China Index has lost about 25% in the last 12 months.
A Bloomberg poll of investors, analysts and traders released last month found that 59% of respondents thought China’s economic growth would expand less than 5% annually by 2016.
That doesn’t mean demand by the Chinese for imported commodities, consumer goods and automobiles will collapse, said analysts at GaveKal Dragonomics, a research firm in China.
The firm projected this week that China’s economic output was on track to reach $7 trillion this year. That’s more than double the $3 trillion of five years ago.
“So every percentage point of GDP growth now has much more real impact,” the firm noted. “In fact, China’s economy is so large now that it is now creating more new domestic demand, in raw dollar terms, than it did when headline GDP growth was in double digits. Even a slowdown to 7.5% next year would still probably mean China is adding more new domestic demand than the Eurozone or the U.S.”
