China Growth Seen Slowing as Momentum Weakens

China’s factory output and investment growth probably weakened in December, adding to signs the world’s second-largest economy is losing momentum as analysts forecast 2014 expansion at the lowest in 24 years.

Industrial-production gains slowed to a five-month low of 9.8 percent and gross domestic product grew 7.6 percent from a year earlier in the October-December period, based on the median estimates of analysts before data due Jan. 20. Expansion will moderate to 7.4 percent this year as investment slows and overcapacity is squeezed, according to a survey last month.

The ruling Communist Party has pledged to seek a more “reasonable” pace of expansion as leaders tackle threats to an economic boom now in its fourth decade, from mounting debt to air pollution that returned to hazardous levels in Beijing this week. At the same time, authorities are trying to avoid a slowdown to below the 7.2 percent rate that Premier Li Keqiang says is needed to sustain employment.

“The whole dynamic of economic growth is weakening -- this is an indisputable fact,” said Li Wei, a Shanghai-based economist at Standard Chartered Plc, which forecasts 7.4 percent expansion this year. While the fundamentals of China’s economy are “not too bad” and exports will help boost manufacturing, curbs on government officials’ spending and awareness of local authorities’ debt will limit infrastructure investment, Li said.

Slower Growth

President Xi Jinping, who took office last March, unveiled the biggest policy transformation since the 1990s in November, including a relaxation in the one-child policy and protecting rural citizens’ land rights, to sustain expansion and address demographic shifts. Authorities have also pledged to reduce emphasis on economic growth as a performance measure for local officials and give more weight to borrowing levels, welfare improvements and environmental degradation.

At least nine Chinese provinces including Hebei, Fujian and Gansu are setting lower growth targets for this year than in 2013. The People’s Bank of China will monitor regional debt risks and “clean up” local government financing vehicles, the central bank said in a statement yesterday.

The National Bureau of Statistics is scheduled to release data including quarterly and full-year GDP at 10 a.m. in Beijing on Jan. 20. The economy may have expanded 7.7 percent in 2013, according to the median estimate of 31 analysts surveyed by Bloomberg, the same as the previous year’s pace, which was the weakest since 1999’s 7.6 percent.

Investment Eases

Fixed-asset investment excluding rural areas probably increased 19.8 percent for the year, based on the median projection of economists. That compares with 19.9 percent in the January-November period and would be the slowest full-year rate since 2002.

Retail sales may have advanced 13.6 percent in December from a year earlier, after a 13.7 percent gain in November, according to analyst estimates.

The economy will grow 7.4 percent growth in 2014, based on the median of 48 projections in a Bloomberg News survey last month. “We look for modest easing in investment growth, relatively solid consumption growth and some moderate upturn in the export sector, supported by the global economic recovery,” Zhu Haibin, JPMorgan Chase & Co.’s chief China economist in Hong Kong, who forecasts 7.4 percent, wrote in a Jan. 1 report.

China’s railway spending may slow this year. The nation plans 630 billion yuan ($104 billion) of railway fixed-asset investment, China National Radio reported last week, citing China Railway Corp., operator of the country’s rail network. That’s about 5 percent less than last year’s 663.8 billion yuan in spending.

Stronger Yuan

The benchmark Shanghai Composite Index has dropped 12 percent over the past year through yesterday as a slowing economy weighed on the outlook for company profits. Exporters have been squeezed by a strengthening yuan, which has gained 2.7 percent against the U.S. dollar and more than 20 percent against the yen over the past 12 months through yesterday.

Central bank data this week showed a record drop in second-half new credit, as government efforts to limit speculation and financial risks signal limits on growth. Last month, the National Audit Office reported that local-government debt including contingent liabilities swelled to a record 17.9 trillion yuan as of June.

Not everyone expects the economy to slow this year. Wang Tao, chief China economist at UBS AG, sees growth picking up to 7.8 percent as the U.S. and Europe support demand for exports. “2014 is going to be a pretty stable year, macro-wise,” though markets could see volatility due to uncertainty over shadow banking and liquidity, Wang said in a Jan. 13 interview in Shanghai with Bloomberg Television.

Cutting Overcapacity

Deutsche Bank AG’s projection of 8.6 percent is the highest among those compiled by Bloomberg. Growth will be supported by reduced overcapacity, deregulation in key industries, rising global demand and increased government spending on infrastructure, analysts led by Ma Jun, chief economist for Greater China in Hong Kong, said in a report this month.

Premier Li indicated in July his “bottom line” for expansion was 7 percent and said in a speech published in November that 7.2 percent growth would create 10 million jobs a year to maintain the urban registered jobless rate at about 4 percent.

Qu Hongbin, chief China economist at HSBC Holdings Plc in Hong Kong, sees expansion of about 7.4 percent to 7.5 percent this year, characterizing the pace as “steady” rather than slow, and says authorities will ensure that growth doesn’t weaken too much. “Regulating shadow banking will have some negative impact,” Qu said. “For the government, keeping growth stable while expediting reform is a very clear goal.”

— With assistance by Xiaoqing Pi

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