China Economy Grows at Slowest Pace in 2 Years

China’s economy grew 9.1 percent in the third quarter from a year earlier, the slowest pace since 2009, adding to concern that the global recovery is fading as Europe’s debt crisis deepens.

The gain was less than the median estimate of 9.3 percent in a Bloomberg News survey of 22 economists and follows a 9.5 percent increase in the previous three months. The statistics bureau released the data in Beijing today.

Asian stocks extended declines after China’s growth was limited by tighter credit and weaker demand from Europe, where German Chancellor Angela Merkel’s office said it saw no immediate fix for the crisis. Today’s data underlined the challenge facing Chinese Premier Wen Jiabao as he tries to slow inflation of more than 6 percent, with industrial production and retail-sales growth accelerating.
“This is not a bad number, and the markets are over- reacting a bit,” said Yao Wei, a Hong Kong-based economist at Societe Generale SA, who correctly forecast the size of the expansion. While today’s data is unlikely to trigger any “sudden change” in monetary policy, “looking ahead, the direction is easing,” she said.
The Shanghai Composite Index fell 1.2 percent as of 10:56 a.m. local time. The MSCI Asia Pacific Index sank 2 percent. The yuan weakened 0.1 percent to 6.3782 per dollar.

Investment Expands

Industrial production increased 13.8 percent in September from a year earlier, the statistics bureau said. That compared with the 13.4 percent median estimate in a Bloomberg survey and a gain of 13.5 percent the previous month.

Fixed-asset investment excluding rural households climbed 24.9 percent in the first nine months, compared with the 24.8 percent estimated by economists and a 25 percent gain through August. Retail sales expanded 17.7 percent after a 17 percent increase in August.

Companies including BASF SE, the world’s largest chemicals company, are expanding in China as higher wages and consumption boost demand. The German company and China Petroleum & Chemical Corp (600028) this month completed an expansion of an ethylene plant in the eastern city of Nanjing.

China’s economy grew 2.3 percent in the third quarter from the previous three months, seasonally adjusted, the statistics bureau said today. That compared with a revised 2.4 percent gain for the second quarter.

Asian ‘Balancing Act’

Asian policy makers face a “delicate balancing act” with inflation remaining elevated while Europe’s crisis threatens growth, the International Monetary Fund said last week.

China has raised interest rates five times over the past year, curbed lending and imposed limits on home purchases to rein in property and consumer prices. Home prices gained in fewer than half of the 70 Chinese cities monitored by the government in September from the previous month as sales eased following harsher policies to curb the risks of asset bubbles, statistics bureau data showed today.
While inflation held above 6 percent for a fourth month in September, Deutsche Bank AG economist Ma Jun forecasts the rate will drop to 4 percent in December and Morgan Stanley analysts estimate a decline to below 4 percent by the end of the year.

China’s money supply expanded at the slowest pace in almost a decade last month and new yuan lending was the smallest since December 2009, central bank data last week showed.

Small Companies 

 

A credit crunch in some parts of China prompted the State Council to unveil tax breaks and financial support for small businesses. The announcement followed a visit by Wen to Wenzhou city in eastern Zhejiang province amid reports of surging bankruptcies among private companies unable to repay debt to so- called underground lenders.

A property slump and slowing export growth are among the biggest risks to China’s growth, according to economists at UBS AG, Nomura Holdings Inc. (8604) and Societe Generale.

Home transactions fell an average 32 percent in 20 major cities over the week-long public holiday earlier this month, according to Soufun Holdings Ltd. (SFUN), and some banks are increasing interest rates on mortgages. Central bank data show new property loans fell 43 percent in the first half of the year to 791 billion yuan.
A drop in land prices in cities including Beijing and Guangzhou and falling land sales presage a slowdown in property investment, according to Nomura’s Hong Kong-based economist Zhang Zhiwei. Vincent Lo, chairman of Shanghai-based Shui On Land Ltd. (272), said last month one bank withdrew loan approvals for his company and other developers.

“The biggest risk now is whether the property market cools abruptly in the fourth quarter,” said Societe Generale’s Yao. “If it does, it may trigger policy loosening.”

Main Danger

UBS’s China economist Wang Tao sees a “global downturn or recession” as the main danger facing the world’s largest exporter in the next 12 months. GDP growth may drop to as low as 7.7 percent in the first quarter of 2012 as “a sharp deceleration” in foreign demand adds to weaker domestic production, according to Wang.

Overseas sales rose less than expected in September as shipment growth to Europe halved and the customs bureau warned of “severe challenges” as the global outlook dims.

That may weigh on China’s currency, which gained 18 percent against the dollar in the past four years, the most among 25 emerging-market currencies. Premier Wen pledged to maintain a “basically stable” exchange rate to protect exporters, the Xinhua news agency reported Oct. 15, citing remarks he made in the southern city of Guangzhou.

China’s economy expanded 10.4 percent last year. Growth will slow to 9.5 percent this year, six times the pace of the U.S. and euro area, according to International Monetary Fund estimates released last month. Expansion of 9 percent in 2012 will be eight times as fast as the group of 17 nations that share the European currency, it forecasts.(Bloomberg)