China’s Growth Slows to Six-Quarter Low

China’s expansion moderated to the weakest pace in six quarters and property construction plunged, testing leaders’ commitment to keep reining in credit as risks mount of a deeper slowdown.

Gross domestic product rose 7.4 percent in the January-to-March period from a year earlier, the statistics bureau said today in Beijing, compared with the 7.3 percent median estimate in a Bloomberg News survey of analysts. Industrial production and fixed-asset investment trailed projections.

The weakest first-quarter property-investment growth since 2009 signals credit is tight and demand is faltering, adding to economic and default dangers as Premier Li Keqiang grapples with risks from shadow banking and local-government debt. A deeper slowdown would put pressure on leaders to expand stimulus or limit the pace of changes intended to give market forces a bigger role in the world’s second-largest economy.

“The property market is probably the biggest risk this year, because this is not a trend the government can fully control with policies,” said Ding Shuang, senior China economist at Citigroup Inc. in Hong Kong. While the government may refrain from large-scale stimulus, “targeted easing” may continue this quarter, especially in real estate, Ding said.

The benchmark Shanghai Composite Index of stocks rose 0.2 percent at the close, while the yuan was little changed at 3:57 p.m. in Shanghai. The MSCI Asia Pacific Index rose 0.9 percent.

Seasonal Adjustment

Expansion slowed from 7.7 percent in the fourth quarter. The economy grew a seasonally adjusted 1.4 percent from the previous three months, compared with the 1.5 percent median estimate of economists and a revised 1.7 percent in the October-December period.

That indicates growth on an annualized basis of 5.7 percent in the first quarter and 7 percent in the previous period, based on data compiled by Bloomberg.

Analysts from Citigroup, Mizuho Securities Asia Ltd. and Australia & New Zealand Banking Group Ltd. questioned the accuracy of the 7.4 percent growth figure.

Shen Jianguang, chief Asia economist at Mizuho in Hong Kong, said he found the number “hard to reconcile with the deterioration in economic activity in March.” Liu Li-Gang, chief Greater China economist at ANZ in Hong Kong, said in a note that industrial output growth last month “suggests China’s real economic growth could be as low as 7 percent to 7.2 percent.”

Employment, Incomes

Sheng Laiyun, a spokesman for the statistics bureau, said indicators of employment and incomes showed reasonable growth in the quarter. China created 3.44 million new urban jobs in the period, 40,000 more than a year earlier, while monitoring of migrant workers shows job gains, Sheng said at a briefing today in Beijing.

Urban per capita disposable income rose 7.2 percent in real terms from a year earlier to 8,155 yuan ($1,311), the statistics bureau said.

The value of property sales in the first quarter fell 5.2 percent from a year earlier and the floor space of new property construction dropped 25.2 percent, data showed today. Property-development investment rose 16.8 percent in the period, the weakest for the first quarter since 2009.

Previously released statistics-bureau data showed that in 2012, investment in urban real-estate development was equivalent to about 14 percent of GDP.

Industrial Production

The 8.8 percent increase in industrial production in March compares with the 9 percent median estimate of analysts and 8.6 percent in January-February. Retail sales rose 12.2 percent from a year earlier, compared with a 12.1 percent median estimate and 11.8 percent in the first two months of the year.

Fixed-asset investment excluding rural households increased 17.6 percent in the first quarter from a year earlier, the statistics bureau said. That trailed the 18 percent median estimate in a Bloomberg survey and the 17.9 percent pace in the January-February period.

“All the forward-looking indicators are weak -- growth is going to continue to slow,” Stephen Green, head of Greater China research at Standard Chartered Plc in Hong Kong, said in an e-mail. “We expect a mix of moderate monetary easing over the next few months and more aggressive reform measures.”

The economy is forecast to expand 7.4 percent this year, according to a Bloomberg survey of analysts last month, which would be the slowest pace since 1990. Growth was 7.7 percent in 2012 and 2013.

Sustain Jobs

Premier Li said last month that the nation needs growth of about 7.5 percent this year to sustain employment. He has indicated a reluctance to broaden pro-growth measures, saying last week that the government won’t adopt “short-term and strong stimulus policies in response to temporary fluctuations in the economy.”

The government on April 2 outlined a package of spending on railways and housing and tax relief to support expansion.

Analysts last month were projecting a rebound in the April-to-June period, to 1.8 percent growth from the previous quarter and 7.5 percent from a year earlier, based on median estimates.

“This highlights the depth of deceleration at the start of the year,” Dariusz Kowalczyk, senior economist at Credit Agricole SA in Hong Kong, said in a note, referring to the sequential quarterly data. “The silver lining is that retail sales and industrial output both rebounded in March, suggesting that growth is bottoming out.”

Shadow Banking

The slowdown is partly being engineered by the government, which has been trying to curb a $6 trillion shadow-banking industry and limit overheating in the property market while eliminating overcapacity and reducing pollution that’s shrouding cities across the nation. President Xi Jinping’s anti-extravagance campaign has hit spending on restaurants and luxury goods.

Policy makers are trying to prevent defaults from spurring broader financial turmoil. Zhejiang Xingrun Real Estate Co., a developer in eastern China, became insolvent with 3.5 billion yuan in liabilities last month, and a failed coupon payment by Shanghai Chaori Solar Energy Science & Technology Co. marked the first default in China’s onshore bond market.

Stress in the financial system from trusts struggling to repay investors is building. Police and at least 30 protesters clashed today outside a China Construction Bank Corp. branch in Taiyuan city. Residents are demanding their money back from a 973 million-yuan high-yield product that the Economic Observer newspaper said missed six payments as of last month.

Central bank data yesterday showed that China’s broadest measure of new credit fell 19 percent in March from a year earlier and money supply grew at the slowest pace on record.

— With assistance by Xiaoqing Pi, and Xin Zhou

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