China's economic growth hits chill

Gross domestic product rose 8.9 per cent in the fourth quarter from a year earlier, the statistics bureau said in Beijing yesterday. Growth fell below 9 per cent for the first time since mid-2009, based on previously reported data, and compared with the 8.7 per cent median forecast in a Bloomberg News survey of 26 economists. Industrial production in December increased 12.8 per cent from a year earlier, it said.

The report could increase pressure on Premier Wen Jiabao to tilt policies towards sustaining growth in the world's second-biggest economy, as policymakers predict a "grim" outlook for exports and inflation concerns diminish. Liang Wengen, China's richest man and chairman of equipment maker Sany Heavy Industry Co, told Mr Wen this month that construction-machinery demand was weak and called for an increase in infrastructure investment.

"Decelerating GDP growth will provide more room for policymakers to shift towards a pro-growth bias after an extended tightening cycle," Jing Ulrich, chairman of global markets for China at JPMorgan Chase & Co, said. "The challenge for policymakers is to implement measures that boost domestic demand without setting back progress made in curbing inflation."

Asian stocks rose after the report boosted speculation the government might take extra measures to spur growth amid concerns about Europe's debt crisis. Full-year economic growth slowed to 9.2 per cent from 10.4 per cent in 2010, yesterday's report showed. The gain in industrial production compared with a 12.4 per cent increase in November.

"The data confirmed no hard landing is likely," said Shen Jianguang, Hong Kong-based chief economist for Mizuho Securities Asia. Still, there is "no room for complacency, given the risks of property sector meltdown and global crises," said Dr Shen, who expected more loosening in credit, an expansionary fiscal policy and loosening in the property sector in the second quarter.

China's benchmark stock index fell the most in a month yesterday, capping a four-day, 3.5 per cent decline, on concern Europe's worsening debt crisis will hurt exports to the nation's biggest market.

The yuan dropped the most in more than two months yesterday after Standard & Poor's stripped France of its top credit rating and downgraded eight other euro-zone countries. Twelve-month non-deliverable yuan forwards have traded at a discount to the onshore spot rate since November 20, apart from one day, reflecting increased bets the Chinese currency will weaken against the US dollar as the economy cools.

Banks including BNP, Nomura Holdings and UBS forecast weaker economic expansion this quarter as overseas sales moderate further and government measures to rein in property prices hurts demand for steel, cement and home appliances. UBS's Hong Kong-based economist, Wang Tao, estimated growth would ease to 7.7 per cent, while Nomura's chief China economist, Zhang Zhiwei, forecast 7.5 per cent or lower.

Fixed-asset investment, excluding rural households, expanded 23.8 per cent last year. Retail sales rose 18.1 per cent in December from a year earlier.

The People's Bank of China last month allowed banks to set aside less of their deposits as reserves and December's new loans were the highest since April, signs that the government is loosening monetary policy to encourage lending even as it maintains curbs on the residential real estate market to bring down home prices.

Expectations of another reduction before the week-long lunar new year holiday that starts on Monday are receding.

The PBOC halted sales of bills and repurchase contracts at the end of last month to add funds to the financial system. Sources said it would inject more cash through 14-day reverse-repurchase operations today and tomorrow.

The central bank might "front-load" policy easing into the first half, with one interest rate cut in March and three reductions in banks' reserve requirements, according to Nomura's Mr Zhang.

Ken Peng, from BNP, estimates four to five reductions in the ratio during the year.

"Any easing won't be as aggressive as after the 2008 global financial crisis," said Mr Peng. Officials would remain wary of inflation, which might rebound later this year, he said.

A deeper recession in Europe, which might cause a sharper slump in demand for China's exports and a "disorderly correction" in the property market, were the biggest risks to the economy, said Chang Jian, a Hong Kong-based economist at Barclays Capital.

The world's largest exporter might see shipment growth halve this year, while property investment, which accounts for about a fifth of the nation's fixed-asset spending, might expand at half last year's rate, Ms Chang said.