China Investment Seen Failing to Secure Growth Rebound This Year

China Central Bank Adviser Sees Slowdown Persisting Into 2013
Data for the past two months point to a deepening slowdown in the world’s second-biggest economy after growth decelerated to a three-year-low of 7.6 percent last quarter. Photographer: Nelson Ching/Bloomberg

China’s economic slowdown may persist into next year amid a lack of funding for approved infrastructure projects, according to an academic adviser to the nation’s central bank.

Expansion will be 7.3 percent to 7.4 percent in the fourth quarter and 7 percent to 7.5 percent in the first half next year, Song Guoqing, a Peking University professor, said yesterday in a brief interview in Beijing. He reiterated a July forecast of 7.4 percent third-quarter growth that was lower than most economists’ projections then and is now in the middle.

Further deceleration in the world’s second-largest economy may complicate the Communist Party’s once-a-decade handover of power, set to begin this year. A private survey showing China’s manufacturing may contract for an 11th month in September sapped investor confidence this week after a previous boost from the government publicizing approvals for road and subway projects.

“There is no hard evidence now to say that there will be a rebound soon,” said Song, an adviser to the People’s Bank of China since March. “Accelerating project approvals is just one part of pushing up investment. The more important condition is money. So far, I don’t see data showing massive money flows into these projects.”

China’s Shanghai Composite Index slid 4.6 percent this week, the most since the week ended Oct. 21, 2011, after a report on manufacturing signaled a contraction and escalating tensions with Japan threatened trade.

Slowing Inflation

Inflation is likely to moderate this month after accelerating to a 2 percent pace in August, Song said.

“In general, China’s inflation is likely to be 2 percent in the coming months,” he said. “The fresh round of quantitative easing in the U.S. will have little effect on China’s price situation.”

Song’s GDP view is consistent with the 7.4 percent median estimate of economists surveyed by Bloomberg News Sept. 11-18 for third-quarter growth. His projections are more pessimistic for what comes next, with analysts forecasting 7.7 percent growth in the fourth quarter and 7.9 percent in the first three months of 2013, based on median estimates.

Last month, the median estimate for third-quarter growth was 7.9 percent in a Bloomberg News survey.

“It’s very hard to say that the first quarter of next year will be the bottom,” Song said. “That time may come even later.”

Monetary Restraint

Data for the past two months point to a deepening slowdown in the world’s second-biggest economy after growth decelerated to a three-year-low of 7.6 percent last quarter. Even so, the central bank has held off from easing after cutting interest rates in June and July and lowering lenders’ reserve requirement ratio three times from November to May.

Yuan Gangming, an economist with the Chinese Academy of Social Sciences, said in an interview this week that the nation’s slowdown may last longer than during the global financial crisis because of worsening external demand and limited lending to smaller companies.

Growth may slow for a ninth straight period to below 7 percent in the first quarter, said Yuan, who formerly headed CASS’s Office of Macroeconomic Research in the Institute of Economics. He forecast 7.4 percent expansion in the third quarter and 7.2 percent in the last period of the year.

“The slowdown will definitely extend into the first quarter of next year,” said Yuan, 58, who advises the government without being directly involved in policy making. “That will provide a good starting point for the new generation of leadership to make a turnaround, because things can’t get worse.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE