Special Reports

Government soft-soaps tepid Chinese growth

Philip Inman

Analysts believe the official line on the economy is too optimistic

Asia has been a ray of sunshine in the global economic gloom, but a recent confidence survey shows the region’s executives are starting to worry as China’s growth slows. Photo: AFP/Philippe Lopez

Phillip Inman

Western firms are preparing for slower growth in China after Beijing said it expected growth to stabilise at 7.5% for the next few years.

The world's second-biggest economy grew by 7.4% in the third quarter compared with a year ago, the seventh consecutive quarter of slower growth, prompting warnings from Nestlé and Nokia that their bottom line was being affected.

The Swiss maker of KitKat chocolate bars and Nescafé coffee said sales growth in Asia, Oceania and Africa, which account for about one-fifth of its total sales, fell from 11.6% to 9.4%. Nokia, the struggling Finnish cellphone firm, also blamed slower growth in China for weaker international sales.

But China's growth figure was only just below government forecasts and a recent surge in industrial output, retail sales and business investment appeared to have put its economy on a sounder footing and in a position to weather the worst of the euro crisis.

Premier Wen Jiabao was quoted by local media as saying that the economic situation in the third quarter was relatively good and the government was confident of achieving its goal.

But Mark Williams, chief Asia economist at analysis firm Capital Economics, said upbeat comments from China's leaders were misleading and disguised a significant drop in activity.

Beijing's statistics have always been treated with scepticism by analysts concerned that they are manipulated to suit the government's political needs.

Announcing the numbers, China's National Bureau of Statistics said a higher than expected rise in September showed growth was on track to stay above target.

"We have 7.7% growth in September, which laid a solid foundation for achieving the full-year growth target. So we are confident that we can achieve 7.5% full-year growth or above," said a bureau spokesperson, Sheng Laiyun.

Williams said a 9.1% annualised figure for the third quarter failed to tally with other economic data, but nevertheless a 7.4% growth rate based on the last four quarters revealed the economy had stabilised and was stronger than expected. He added: "Our forecasts remain that the economy will expand by about 7.6% this year and only 8% in 2013."

Alistair Thornton, senior China economist at research company IHS Global Insight, said: "Those fearing a hard landing will be able to sleep a little better tonight, but those positioned for a clear recovery might be disappointed. The picture is one of emerging stabilisation, not the return of unbridled optimism."

European stock markets reacted positively as the prospects of a China-induced recession receded before paring back gains in afternoon trading.

Several analysts said Beijing was keen to moderate growth to prevent the economy from entering a boom and bust cycle. After the financial crisis, China embarked on a massive stimulus that maintained consumer demand.

But the extra cash spilled over into the property sector and triggered an upsurge in prices.

A downturn after the Greek debt debacle was avoided by cuts in interest rates, which many analysts feared would fuel an even bigger property price bubble. Projections that China has waved goodbye to double-digit growth is expected to cool property prices and prevent any overheating causing panic and a price crash.

Real estate investment rose by 15.4% in the first nine months of 2012, slowing only marginally from an annual increase of 15.6% in January to August.

Meanwhile, land sales slowed to 4.9% in September from a year earlier, down sharply from August's 20.4%, according to Reuters's calculations based on official statistics bureau data.

"There is still a bit of uncertainty around how much housing can hold up. That's a critical sector, representing 27% of [total] investment and that's probably where the uncertainty is at the moment," said Zhang Zhiwei, chief China economist at financial services giant Nomura in Hong Kong. He added that signs indicated a rebound in gross domestic product growth during the last three months of the year.

Copyright: Guardian News & Media 2012

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