Growth pace likely to satisfy Beijing

Beijing - China’s economic growth slowed further in the first quarter but appeared strong enough to satisfy Chinese leaders who are trying to put the country on a more sustainable economic path without politically dangerous job losses.

The second-largest economy grew 7.4 percent year on year in the quarter to March, down from 7.7 percent in the fourth quarter of last year, official data showed yesterday. It matched a mini-slump in late 2012 for the weakest growth since the 2008/09 global crisis.

Beijing is trying to guide the economy towards growth based on domestic consumption instead of trade and investment following the past decade’s explosive expansion. Last week the top economic official, Premier Li Keqiang, ruled out new stimulus and said leaders would focus on “sustainable and healthy development”.

“Chinese growth held up better than expected last quarter and there are signs that downwards pressure on growth has eased somewhat,” Capital Economics analyst Julian Evans-Pritchard said.

Retail sales and factory output were weaker than in the previous quarter but improved last month.

On a quarterly basis, economic growth in the three months to March slowed to 1.4 percent from 1.8 percent in the previous quarter.

The data reflect official efforts to shift emphasis from investment-intensive industry to services such as restaurants and retailing that generate more jobs and less pollution.

Credit growth slowed last month and the expansion of China’s overall money supply rose at its slowest rate since 1997. Housing sales in the first quarter declined 5.7 percent from a year earlier.

“The continued slowdown in money and credit growth is likely to keep exerting relentless downward pressure on China’s economic growth,” Société Générale economist Wei Yao said. “Without re-acceleration of debt growth, the economy is unlikely to stabilise for another quarter at least.”

Stock markets in Asia and Europe were mostly higher, shrugging off the Chinese figures because growth did not slow as much as forecast by analysts.

The latest economic growth is below the official annual target of 7.5 percent announced last month. However, Chinese leaders appear willing to miss that target so long as the economy creates enough jobs to avoid potential unrest.

In a sign of concern about employment, they launched last month a mini-stimulus of higher spending on building railways and low-cost housing.

“Policymakers appear comfortable with the current pace of growth,” Pritchard said. “The policy response to [the] numbers is likely to be muted.”

Some analysts said with inflation subdued at 2.4 percent last month, the central bank might respond by easing monetary policy and injecting extra money into credit markets.

Domestic consumption is rising but more slowly than Beijing wants. In October last year, the government said consumption accounted for 55 percent of growth and investment for most of the rest. Government spokesman Sheng Laiyun said the ratio for the latest quarter was being calculated.

The quarterly expansion matched the third quarter of 2012, when growth tumbled after global demand for China’s exports weakened unexpectedly while the government was tightening lending and investment controls to cool surging inflation.

The past decade’s rapid growth was driven by an export boom and spending on factories, apartment towers and other assets. But that model is losing its ability to drive growth. It also left China with badly polluted air and water.

Chinese leaders have promised sweeping changes to make the economy more competitive and efficient, including opening more industries to private and foreign competitors.

They have issued a steady drumbeat of minor changes in recent months, such as making it easier to register a business, but more basic change such as in the state-controlled banking system is politically fraught and could take years.

Last year’s growth of 7.7 percent was the strongest of any major economy but tied 2012 for China’s slowest expansion this century. – Sapa-AP