China's economic growth slows further in 1Q
BEIJING - The worst might be over for China's economy even as growth in the first quarter slumped to its lowest rate in more than a decade.
The world's third-largest economy expanded by 6.1 percent from a year earlier, down from 6.8 percent the previous quarter, the National Bureau of Statistics reported Thursday. But it said industrial activity, retail sales and bank lending improved.
"The recovery has begun," said Citigroup economist Ken Peng. "If we don't have any major mishaps, then this should be relatively sustainable."
Growth was the slowest since at least 1997 and possibly as early as 1992, according to analysts. Beijing has repeatedly revised historical data, making comparisons difficult.
While the overall economy slowed, growth in industrial output jumped to 8.3 percent in March from 3.8 percent for the first two months of the year, said Li Xiaochao, a statistics bureau spokesman. Investment in factories and other fixed assets soared 28.6 percent, while consumer spending _ a key part of the recovery plan _ rose 15 percent.
Premier Wen Jiabao, China's top economic official, said the figures showed the government's 4 trillion yuan ($586 billion) in stimulus spending was producing results and the economy was in "better than expected" shape, the official Xinhua News Agency reported.
Beijing worries that mounting unemployment might fuel unrest, and its priority is creating jobs. The government's official growth target is 8 percent, which some analysts say is the minimum needed to create enough employment.
Beijing's stimulus spending is aimed at reducing reliance on exports by boosting domestic consumption. It is pumping money into the economy through higher spending on highways and other public works.
Spending has gone mostly to state companies, but money is starting to flow to the private sector as they pay workers, buy materials and hire subcontractors.
Orders at the Jingling Machine Tool Manufacturing Co. in the eastern province of Anhui rose 20 percent in March and April compared with the final quarter of 2008, said Shen Caiming, one of its managers. The privately owned company employs 400 people.
"I think it certainly has to do with the stimulus policy. You can see the economy is warming up," she said. "But it's hard to forecast our business for later this year. It seems that mainly it's the government policy taking effect now, so we can't be too optimistic."
The World Bank and some private sector economists see a recovery starting this year, but others say sustained growth is impossible until consumer demand in the United States and other Western markets rebounds. The World Bank is forecasting 6.5 percent growth this year.
A rebound could be significant for the global economy, increasing China's appetite for imports at a time when the U.S., Japan and other major countries are expected to be struggling with recession.
Chinese officials say any recovery is vulnerable to global conditions even as they try to boost public confidence and encourage consumers and companies to spend.
"The foundation for fast and stable growth is not solid, and we face daunting challenges further down the road," Li, the statistics bureau spokesman said.
Yet, other areas of the economy have improved, with auto sales hitting a monthly high in March and imports of coal, oil and iron ore rising.
Analysts said that if China's growth were measured the way other major countries report data _ comparing each quarter with the previous quarter _ then its growth accelerated in the first quarter.
JP Morgan economist Frank F.X. Gong said quarter-on-quarter growth jumped to 5.8 percent from a low of 2.2 percent in the October-to-December period.
Rock Jin, chief economist for Sinolink Securities Co. in Beijing, cautioned that economic activity not connected to the stimulus was still weak. Jin said 2.4 percentage points of the expansion was due to stimulus spending, while 3.7 percent came from other industries.
"The decline of regular economic growth is continuing, and the speed of the decline beat expectations," he said.
The collapse in demand for Chinese exports threw at least 20 million people out of work as factories closed. It is unclear how many might have found new jobs in stimulus-financed projects.
About 25 percent of China's manufacturing capacity is idle despite efforts by exporters to shift to the domestic market, according to Mei Jianping, a finance professor at the Cheung Kong Graduate School of Business in Beijing.
Some economists say the stimulus impact might fade before self-sustaining growth takes hold and Beijing might have to launch a new package later this year. Wen, the premier, said in March the government had additional plans in case the crisis worsened.
"If this stimulus naturally connects with the next recovery in demand, then this will be sufficient," Citigroup's Peng said. "But the fear is demand won't come back fast enough and to maintain growth at a fairly high level it will require more money."
Associated Press researcher Bonnie Cao in Beijing contributed to this report.
On the Net:
National Bureau of Statistics of China (in Chinese): http://www.stats.gov.cn
A service of the Associated Press(AP)