Coverage: China’s growth slowest in six years

China, the world’s biggest economic engine, is slowing down. After posting the slowest growth in six years, many are watching to see what if the government will do anything to stimulate it.

The New York Times had this story by Neil Gough saying that interest rates cuts are likely on the table:

China’s leaders are widely expected to cut interest rates and encourage lending after data on Wednesday showed that an industrial slump and a weak housing market had dragged economic growth to its slowest pace in six years.

The question now is whether those steps will be enough to avert an even sharper slowdown.

Key barometers of the country’s economic health are looking gloomy. Industrial production in March increased at its slowest pace since late 2008, while retail sales, a sign of consumer demand, rose at the slowest rate in nearly a decade. Land purchases by developers, a major source of revenue for China’s heavily indebted local governments, fell 32 percent in the first three months.

”There certainly is pressure now, and the pressure on some sectors is quite heavy,” China’s premier, Li Keqiang, told a gathering of economists in Beijing on Tuesday, before the new growth figures were released.

Kevin Yao and Koh Gui Qing wrote for Reuters that several different indicators of economic strength were down:

Monthly retail sales, industrial output and fixed asset investment data released with the GDP figures all missed analyst expectations. Growth in fixed-asset investment (FAI), a key economic driver, was the slowest since 2000, while industrial output grew at its weakest since the global financial crisis in 2008.

Power output, which some analysts use as a proxy for economic activity, fell an annual 3.7 percent in March, the biggest fall since the 2008 crisis.

More bad news came from the real estate sector, a major economic pillar and where investment rose an annual 8.5 percent in the first quarter, the weakest rate since 2009.

“If you look at Q1, exports were poor, industrial production was poor, FAI was much slower, retail sales soft, so how can GDP in real terms still be 7 percent?” said Kevin Lai, senior economist at Daiwa in Hong Kong.

Gabriel Wildau, Tom Mitchell and Jamil Anderlini wrote for The Financial Times that many expected the economic slowdown this year:

An economic slowdown in China is widely seen as inevitable but also necessary as the country tries to move from its traditional dependence on smokestack industries towards domestic consumption and services.

“We expected the fall in economic growth,” Sheng Laiyun, NBS spokesman, said on Wednesday. “As the economy enters the ‘new normal’, the drop in growth rate is good for structural adjustment and transformation.”

However, policy makers want to avoid an abrupt slowdown that could cause unemployment to spike and trigger a wave of defaults that could threaten financial stability.

The People’s Bank of China has cut interest rates twice since November in an effort to stimulate investment by lowering borrowing costs. But analysts say companies remain loath to invest even at lower rates, given weakness in final demand and highly indebted corporate balance sheets, especially among state-owned firms.

Separate data out on Wednesday added to the picture of a slowdown. Factory output grew at a record low pace of 5.6 per cent in March, well below the previous low of 6.8 per cent in January and February.

Mark Magnier wrote for The Wall Street Journal that China’s growth was the only disappointing economic number this week:

Wednesday’s figures are the latest in a parade of disappointing numbers. This week saw a sharp drop in March exports that economists termed “shockingly weak” and an “unexpected plunge” and unusually soft March credit data even as the property market – which accounts for one-quarter of the economy when construction, steel and related industries are included — continue to flag.

Arthur Chen, deputy manager at a company in the eastern city of Hangzhou that sells products fitted with solar cells, said he wishes he were less dependent on the struggling construction and housing industries. “They’re where most of our businesses come from,” he said. “So the downturn hurts us.”

Still, China remains a major global growth driver. Despite slower growth last year of 7.4%, its slowest pace in nearly a quarter century, China’s $10 trillion economy is more than twice the size it was in 2008 and contributes twice as much to global growth as the U.S.

While many worried that could lead to the Chinese slowing U.S. debt purchases, the Japanese have stepped into the void. The Wall Street Journal also reported in a story by Min Zeng, Lingling Wei and Eleanor Warnock that Japan surpassed China:

Japan dethroned China as the top foreign holder of U.S. Treasurys for the first time since the financial crisis, following a wave of purchases by buyers shifting money to the U.S. as Japan’s economic policies push down interest rates there.

In reclaiming its status as the largest foreign creditor to America in U.S. official data, Japan is reasserting itself as Beijing holds its Treasury portfolio steady amid a weakening Chinese economy.

U.S. debt bears higher yields than government bonds offered in other rich nations, thanks to the perception of stronger U.S. growth prospects and to central-bank bond purchases that have driven yields near zero across Europe and in Japan.

While China might be slowing, the rest of the world looks as if it might be returning to normal (Greece aside). It’s likely welcome news that some of the growth is being redistributed. And a more equitable global economy will only benefit everyone.