China fuelled fears over a global recession by warning that the financial crisis is damaging its economic growth.
Data released on Monday showed that China’s gross domestic product expanded by 9% in the third quarter of 2008, down from 10,1% for the second quarter. Although this is healthy compared to other major economies, it is less than the figure expected by experts — and the first time the country’s GDP growth has dipped below 10% in almost three years.
China’s government blamed lower growth on the world economic slowdown, which means less demand for Chinese exports.
“The growth rate of the world economy has slowed down noticeably. There are more uncertain and volatile factors in the international economic climate. All these factors have started to release their negative impact on China’s economy,” said Li Xiaochao of China’s national bureau of statistics.
After years of boom, China’s GDP growth slowed over the past five consecutive quarters. The country is a huge consumer of raw materials.
Last week the mining giant Rio Tinto caused share prices to slump by warning that demand from China was slowing.
Analysts believe that GDP growth will slow further in the fourth quarter, as the impact of the financial crisis bites.
Huainan Zhao, a banking expert at the Cass Business School, in London, said: “The problem is that China’s economic growth is slowing down when it is most needed. I am afraid that the world will have to live with a slowing Chinese economy.”
The International Monetary Fund forecast that the Chinese GDP will decline from 12% last year to about 9,6% this year. A worry for the leadership is that net exports contributed only 1,2% to the country’s total GDP growth over the past nine months, down from 2,4% over the same period of 2007.
China’s toymaking industry is under particular pressure, following safety scares relating to manufacturing processes last year.
Last week more than 6 000 employees lost their jobs when Smart Union, a toy manufacturer in Dongguan, closed. It blamed a fall in demand from the United States.
Since President Hu Jintao took charge in 2004, his mission was to correct the imbalances that accumulated in the economy since market reforms began in 1978. Senior leaders have talked about boosting domestic consumption by raising incomes and improving social services, but growth remains export-led.
Already forced to yield to international pressure to revalue its currency and make goods more expensive overseas, China now faces a slump in demand as the recession hits its markets in Europe and the US. A back-up plan is urgently needed.
Last week, China’s senior Communist party leaders approved plans to strengthen the rural economy and improve the incomes of farmers.
They hope that making citizens wealthier will create a new market for the computers and appliances being shipped abroad. For now, the measures appear to be too little, too late.
Stock markets across Asia recorded gains overnight — after a week of volatility — as traders welcomed a $130-billion bail-out of South Korea’s banking sector. The Seoul government recently announced it would support banks with $30-billion of fresh liquidity and loan guarantees totalling $100-billion.
The move came days after ratings agency Standard & Poor’s put the country’s five biggest banks on a ratings watch.
S&P warned that they could struggle to repay foreign loans as the South Korean currency fell by a third against other currencies since January.
Before the data’s release, government leaders mapped out a strategy for countering the slowdown. Newspapers reported measures to spur lending and stabilise the country’s volatile financial markets.
Share prices, for example, are still down nearly 70% from the peak they hit a year ago.
In China, Li Xiaochao said that measures — including export tax relief — would be introduced to ease the pain.
A rescue plan for the real estate sector is in the works. The Beijing leadership vowed to spend more on welfare and construction, such as rebuilding the areas devastated by the earthquake in Sichuan province in May. —