China’s Economy Slows to Weakest Since 2009 as Output Wanes

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Is Chinese Economy Worse Than Government Reports?

China’s economy expanded at the weakest pace since 2009 last quarter, with output, investment and retail data pointing to a deepening slowdown.

Gross domestic product rose 7 percent in the three months through March from a year earlier, the statistics bureau said in Beijing Wednesday, matching the median estimate of economists and the leadership’s full-year expansion target. Data for the month of March showed industrial production was weaker than all 40 estimates in a Bloomberg News survey.

While China’s leaders have signaled tolerance for a slower expansion as they seek to rein in debt risks, corruption and pollution, today’s reports speak to the case for policy makers to deploy greater stimulus. Premier Li Keqiang’s government has already relaxed home-purchasing rules, cut interest rates twice and reduced the reserves banks must set aside in recent months.

“Economic momentum down-shifted more significantly in March,” said Andrew Polk, a Beijing-based economist at the Conference Board research group. “The implications are for further sluggishness in the second quarter, without a more forceful policy response.”

Underscoring the effect slowing investment is having on the ground, Zoomlion Heavy Industry Science and Technology Co. Ltd., the Changsha-based construction machinery manufacturer, on Tuesday flagged a first-quarter loss. The company cited the continued slowdown in fixed-asset investment and delays in projects because of the Lunar New Year holidays.

Stocks Retreat

The Shanghai Composite Index of stocks slid 1.2 percent, eroding some of this year’s rally. Asian stocks also slipped, with the MSCI Asia Pacific Index retreating from the highest level in more than six years. The Australian dollar declined, and one-year interest-rate swaps fell to a four-month low on speculation of further monetary easing.

Industrial production rose 5.6 percent in March from a year earlier, the weakest since November 2008 and less than the 7 percent median estimate of analysts. Retail sales climbed 10.2 percent, compared with the 10.9 percent median projection. Fixed-asset investment excluding rural areas expanded 13.5 percent in the first quarter, compared with the 13.9 percent seen by economists.

“I am surprised at how weak the March industrial production is,” said Wang Tao, chief China economist at UBS Group AG in Hong Kong, who Tuesday attended an economic forum chaired by Li. “The impact of monetary policy is limited but they do need to cut rates.” She said that the government also will have to take steps to address a slowdown in the real estate sector and boost infrastructure spending.

Li’s Transition

Li is seeking to engineer a transition away from debt-fueled investment growth toward an economy where consumers and services make up a bigger share. Reflecting the shift, services accounted for 51.6 percent of GDP in the first quarter, 8.7 percentage points more than manufacturing.

The premier last month said policy makers will step in to support the economy if jobs and wages are hurt by the slowdown. Statistics bureau commentary on the labor market Wednesday changed the description of the labor market to “basically stable,” from “stable overall” in the prior quarter.

“There might be some worsening signs in the job market, and if consumption also worsens as a result, the Chinese government will have to do more,” said Li Wei, the China and Asia economist for Commonwealth Bank of Australia in Sydney.

Deflation Danger

An economy-wide inflation indicator turned negative for the first time since 2009, suggesting room for further monetary easing. The nation needs to be vigilant about deflation risks and policy makers have “room to act,” People’s Bank of China Governor Zhou Xiaochuan said last month. Broad deflation would escalate borrowers’ debt burdens.

“Monetary conditions look uncomfortably tight,” said Bloomberg economists Tom Orlik and Fielding Chen. “We continue to expect an accelerated move to ease in the weeks ahead, including cuts in interest rates and the reserve requirement ratio.”

Orlik and Chen calculated that GDP in the first quarter rose 5.3 percent from the previous three months, on an annualized basis -- similar to the way that the U.S. reports its headline figure. That’s down from 6.1 percent in the final quarter of 2014.

The International Monetary Fund this week retained its projection for a 6.8 percent expansion for the full year -- growing less than India for the first time since 1999. The other BRIC peers, Russia and Brazil, were seen contracting.

— With assistance by Xiaoqing Pi

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