China’s old growth model is spluttering.
Cement output plunged 21 percent in March from a year earlier, electricity output dropped 3.7 percent, and crude steel fell in the first quarter for the first time in 20 years. The declines are symptomatic of sliding investment in homes, the once vital engine that powered China’s economy. Property investment growth slowed to 8.5 percent in March, the National Bureau of Statistics said Wednesday, the slowest since early 2009 when China was hit by the global recession.
“When we are talking about China’s slowdown, we’re talking about the rapid declines in the traditional industries of property and steel for instance,” said Zhu Haibin, the Hong Kong-based chief China economist for JPMorgan Chase & Co. “It takes time for new industries to take over -- the so-called new sectors are at best stabilizers, not new growth engines.”
China’s economy expanded at the weakest pace since 2009 last quarter, putting additional pressure on Chinese Premier Li Keqiang to roll out more pro-growth policies. With looser restrictions on home purchases, two interest rate cuts and a reduction to the amount of reserves banks need to set aside not reviving the property market, question marks over policy makers’ ability to turn things around are rising.
“In the past, the government could just start new infrastructure projects and overall investment would be good, but now additional spending on infrastructure will barely offset the weakening property market,” said Xu Gao, the chief economist of China Everbright Securities Co. in Beijing who previously worked at the World Bank. “China has to relax property policies further to aid growth.”
Yu Bin, a researcher with the Development Research Center, a study arm under the State Council, said at a press briefing this month that real estate investment will slow to 7 percent in 2015. JPMorgan’s Zhu sees a deeper slide to 6 percent, wiping out about 0.6 percentage points from headline GDP growth.
While housing’s influence is pervasive, driving sales of everything from cement to steel, electrical appliances, furniture and cars, the news Wednesday was not all bad.
“With growth of wages and household income holding up well, robust consumption growth remains an important buffer against a deeper overall economic slowdown,” said Louis Kuijs, Royal Bank of Scotland Group Plc’s chief Greater China economist in Hong Kong.
Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong, said most of the negatives afflicting the economy, namely property and destocking, are cyclical and “thereby sow the seeds for future recovery.”