China Growth Loses Momentum in Blow to Global Expansion

China’s economic growth unexpectedly lost momentum in the first quarter as gains in factory output and consumption weakened, driving stocks and commodities lower on concern global expansion will slow.

Gross domestic product rose 7.7 percent from a year earlier, the National Bureau of Statistics said in Beijing today. That compares with the 8 percent median forecast in a Bloomberg News survey of 41 analysts and 7.9 percent in the fourth quarter. March industrial production increased less than estimated while retail-sales growth matched forecasts.

Today’s data add to concerns the global recovery is struggling, with the International Monetary Fund set to lower its forecast for U.S. growth and investor George Soros warning that Germany will probably be in recession by the end of September. Moderating inflation may give new Premier Li Keqiang more room to boost domestic demand as the euro-area debt crisis clouds the outlook for exports.

“The disappointing data show the recovery is much weaker and bumpier than expected, dragged down by soft domestic demand,” said Zhu Haibin, chief China economist at JPMorgan Chase & Co. in Hong Kong. The expansion in credit so far this year may help growth pick up in the second quarter, and authorities may ease efforts to rein in so-called shadow banking while boosting spending in areas including health care and environmental protection, Zhu said.

JPMorgan today cut its 2013 growth forecast to 7.8 percent from 8.2 percent, while Royal Bank of Scotland Group Plc lowered its estimate to 7.8 percent from 8.4 percent.

Stocks Decline

The MSCI Asia Pacific Index of stocks dropped 0.8 percent at 4:06 p.m. in Tokyo, poised for the first decline in six days. China’s benchmark Shanghai Composite Index fell 1.1 percent at the close, the most this month. The S&P/GSCI Index of 24 commodities tumbled 1.4 percent, as oil declined 2.3 percent to $89.17 a barrel in New York.

First-quarter expansion was lower than all except two analyst estimates out of 41 ranging from 7.5 percent to 8.3 percent. October-December growth showed the first acceleration in two years, up from the third quarter’s 7.4 percent rate. For 2012, expansion was 7.8 percent, the least since 1999.

The statistics bureau characterized the economy in the first quarter as “stable,” with Sheng Laiyun, a spokesman, saying the expansion rate isn’t low compared with other nations. China’s new leadership is putting more emphasis on quality of growth, and urbanization will continue to create demand, Sheng said at a briefing in Beijing.

While the economy has had a smooth start to the year, China still faces a complex situation due to instability and uncertainty domestically and abroad, Premier Li said in comments published yesterday by the official Xinhua News Agency.

March Output

China’s industrial output in March rose 8.9 percent, today’s report showed. That compares with the median estimate of 10.1 percent in a Bloomberg survey and a 9.9 percent pace in the first two months combined. Retail sales grew 12.6 percent, matching the median forecast. Fixed-asset investment excluding rural households in the first quarter increased 20.9 percent, against a median estimate of 21.3 percent and a 21.2 percent pace in the first two months.

The data reflect a slowdown in light industrial production, “weak” consumption partly affected by a government frugality campaign and export gains that aren’t as strong as customs figures suggest, said Wang Tao, chief China economist at UBS AG in Hong Kong.

Credit Growth

Even so, “we do not think the government should ease monetary policy further” because of “very rapid” credit growth and low interest rates, Wang said.

Industrial-production growth of 9.5 percent for the first quarter compared with the previous period’s 10 percent, while retail-sales expansion of 12.4 percent was lower than the 14.5 percent in the fourth quarter indicated by previous data.

Services accounted for 47.8 percent of the economy in the first period, generating more of GDP than the “secondary” industries that include manufacturing, mining and construction, which accounted for 45.9 percent.

The government last month set a 7.5 percent growth target for this year and Li said March 17 that the nation must maintain that pace through 2020 as the country seeks to double per capita income this decade.

Sheng said he’s optimistic China will achieve the goal this year, as the nation’s economic fundamentals remain sound. At the same time, China’s potential growth rate has dropped as part of an “inevitable trend,” he said.

BHP Forecast

BHP Billiton Ltd., the world’s biggest mining company, expects annual economic growth in China to moderate toward 6 percent after two years, Graham Kerr, chief financial officer of the Melbourne-based company, said at the Bloomberg Australia Economic Summit in Sydney on April 10.

Separately today, the World Bank cut its forecast for China’s growth this year to 8.3 percent from 8.4 percent, as it updated projections for the East Asia and Pacific region. The IMF may lower its U.S. expansion outlook to 1.7 percent from 2 percent, according to a draft report obtained by Bloomberg News ahead of tomorrow’s release.

Huaneng Power International Inc., the nation’s biggest electricity producer, said last week that power generation at its Chinese plants declined 2.4 percent in the first quarter from a year earlier and electricity sold slid 2.3 percent due to weakness in domestic power demand.

Communist Party chief Xi Jinping’s campaign to rein in lavish spending by officials and state-owned companies has dented consumption of luxury items, with high-end restaurants, food and liquor bearing the brunt of the frugality push.

Liquor Price

Bottles of Kweichow Moutai, China’s “most prestigious liquor,” sold for an average 1,300 yuan ($210) in March, down 28 percent from December, when military staff were banned from consuming alcohol during official functions, HSBC Holdings Plc said in an April 10 report.

The anti-extravagance policies “have achieved obvious results,” spokesman Sheng said today. Declining sales at high-end restaurants “showed that such consumption financed by public funds has been curtailed somewhat,” he said.

Government receipts and outlays are also slowing. Fiscal revenue growth slowed in March to 6.1 percent from a year earlier after an 18.7 percent gain in the same month in 2012. Fiscal spending rose 7.2 percent, slumping from a 34.7 percent increase the previous year.

Growth in real-estate investment slowed to 20.2 percent in the first quarter from 22.8 percent in the first two months combined and 23.5 percent in the same period last year, according to statistics bureau data.

Housing Starts

New residential-housing construction by area fell 0.8 percent from a year earlier, while residential-housing sales by area rose 41.2 percent and the value of sales rose 69 percent. Land purchases by property developers in the first quarter fell 22 percent by area.

Elsewhere today, Asia’s emerging economies should consider reining in monetary stimulus to curb risks of asset bubbles and inflation, the World Bank said in a report as it lowered its 2013 growth forecast for the region to 7.8 percent from 7.9 percent.

Australia reported home-loan approvals rose 2 percent in February from January, gaining for the first time since September. Japan said industrial production rose 0.6 percent in February from the previous month, while Singapore’s retail sales fell from a year earlier.

European Trade

In Europe, the euro-area’s trade surplus may have widened in February. In the U.S., the Federal Reserve Bank of New York’s general economic index may show manufacturing in the New York region expanded for a third month in April, according to a Bloomberg survey.

China’s March new local-currency loans were 1.06 trillion yuan, the most for that month since 2009, and aggregate financing, a broader measure of credit that includes bond and stock sales, was close to a record, aiding the nation’s recovery, central bank data last week showed. At the same time, the surge in lending stands to increase risks in the financial system that may spur the government to tighten credit.

Policy makers may have fewer concerns when it comes to inflation, as consumer-price gains in March eased more than forecast to 2.1 percent from a year earlier.

“The recovery will be a weak and short-lived one,” said Yao Wei, China economist at Societe Generale SA in Hong Kong. Fixed-asset investment growth, which trailed estimates, was the “biggest surprise,” especially given the quarter’s “fast” credit expansion, she said. “Now it seems some of the credit boost will only take effect later in the year.”

(Corrects first-quarter retail sales in 13th paragraph and adds basis for fourth-quarter comparison in story published yesterday.)
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