China's growth weak but shows signs of stabilising

People waiting to cross an intesection in Beijing on April 15, 2016.
People waiting to cross an intesection in Beijing on April 15, 2016. PHOTO: AFP

China's economy slowed further in the first quarter though signs are emerging that Beijing's various stimulus measures are helping to stabilise growth.

The economy grew by 6.7 per cent in the three months to March - its slowest pace in seven years since the first quarter of 2009 in the depths of the global financial crisis.

Still, the figure was largely in line with market expectations and is within Beijing's targeted range of between 6.5 per cent and 7 per cent for the year.

Analysts said the latest figures suggest the risks of a deeper downturn this year - a so-called hard landing - remain low.

China's secondary sector, which includes manufacturing and construction, expanded by 5.8 per cent, while the service sector grew by a markedly stronger 7.6 per cent. Other data out yesterday showed new loans, retail sales, industrial output and fixed asset investment posted stronger growth last month.

The data came on the back of good news earlier this week that China's exports grew in March for the first time in nine months. Both private and official surveys of factory purchasing managers also indicated that manufacturing activity improved last month.

China's National Bureau of Statistics spokesman Sheng Laiyun told a press conference yesterday that there are signs of China's slowdown "bottoming out", Xinhua news agency reported.

But he warned that global uncertainties and difficulties in the structural transition to a consumption-driven economy could still drag down growth in the world's second-largest economy. It will take more time to tell if the stabilisation can last.

"China's future growth is likely to follow an L-shaped trajectory in the long run, but in the near term, it may present a U- or W-shape due to fluctuations," he said.

While analysts and policymakers said the data pointed to a "good start" for this year, the reaction in Asian markets was largely muted, with Shanghai and Hong Kong shedding 0.1 per cent. Singapore was up 0.3 per cent.

Bank of Singapore chief economist Richard Jerram said the latest data indicates that one of the headwinds to growth in Singapore - China's economy - will moderate.

But he also sounded a note of caution. He said that while new debt in China created has helped boost growth, it is growing much faster than economic activity, creating a huge credit bubble. The situation may not be sustainable, he noted.

For a more sustainable recovery in the coming months, HSBC analysts Julia Wang and Li Jing believe that "more determined policy easing, plus further capacity reduction" still hold the key.

"A lot still depends on the continued delivery of the planned fiscal expansion. Stronger fiscal support will help lift infrastructure investment and put the recovery on a surer footing."

A version of this article appeared in the print edition of The Straits Times on April 16, 2016, with the headline 'China's growth weak but shows signs of stabilising'. Print Edition | Subscribe