In Surprise, Recovery in China Loses Steam

HONG KONG — The Chinese economic recovery lost some of its momentum during the first quarter of this year, official data released on Monday showed, surprising analysts who had expected growth to accelerate on the back of ample credit, strong infrastructure spending and firm exports.

The economy expanded by just 7.7 percent during the first three months of the year, compared with a year earlier, short of the 8 percent that economists polled by Reuters had projected, and slower than during the previous three months, when gross domestic product rose 7.9 percent year-on-year.

Disappointing industrial output data for March also underlined the fading momentum. Year-on-year growth dropped to 8.9 percent, the lowest pace of expansion since August 2012, when fears of a “hard landing” in China were widespread.

The surprisingly poor data raised concerns among some analysts that the slowdown could intensify later in the year, due the effects of recent government measures aimed at curbing property price rises and tempering risks from the growth of lending outside of the banking system.

“While August 2012 proved the bottom for last year’s downturn, we doubt March will be the turning point for 2013, given macro policy has shifted to a tighter stance with renewed controls on the housing market, local government financing vehicles and wealth management products,” Xianfang Ren and Alistair Thornton, analysts at IHS Global Insight in Beijing, wrote Monday in a research note.

Fears over the outbreak of avian flu and new signs of slowing investment momentum could also sidetrack growth in the second quarter of this year, Li-Gang Liu, a China economist at the bank ANZ in Hong Kong, wrote in a research note.

Chinese authorities on Monday played down the slowing growth.

“Our overall judgment is that, although there was a slight dip in growth in the first quarter, it was generally speaking a steady start with stable progress,” Sheng Laiyun, a spokesman for the Chinese statistics bureau, told a televised news conference in Beijing. “China’s basic circumstances have not undergone any fundamental shift, and it still has the conditions for maintaining sustained and healthy economic development over the long term.”

The country’s industrialization and urbanization would remain powerful engines for relatively rapid growth, Mr. Sheng said, while the data also contained signs that domestic consumption was making a growing contribution to that growth, displacing China’s traditional reliance on industrial and infrastructure investment.

Still, the disappointing headline growth figures helped send stock markets across most of Asia lower on Monday.

In mainland China the Shanghai composite index dropped 0.9 percent by early afternoon. The Hang Seng in Hong Kong and the Nikkei 225 in Japan both fell about 1.5 percent, and in Australia, the S.P./ASX 200 fell 1.3 percent.

Analysts had widely expected China’s economy, the world’s second biggest after the United States, to have picked up more steam during the first months of the year, as a tide of credit flowed into the economy, and government-mandated investment in infrastructure projects picked up.

In fact, the growing scale of credit has begun to worry an increasing number of analysts, who warn that the resulting buildup of debt bears substantial risks, including asset price bubbles and potentially destabilizing defaults.

Fitch Ratings last week expressed concerns about the long-term consequences for China’s financial stability over the country’s huge buildup in debt, particularly borrowing by local governments.

The ratings agency reduced its default rating on China’s long-term local currency debt to A+, from AA–.

Data released last week showed that total social financing, the central bank’s broad measure of liquidity, surged in March to 2.4 trillion renminbi, or about $390 billion — more than double the February number.

On Friday, the recently appointed Chinese Prime Minister Li Keqiang said the newly installed leadership in Beijing faced the twin tasks of maintaining growth while overhauling the economy.

“To come to grips with economic policy, we must both keep a steady footing and focus on upgrading,” Mr. Li told a group of economists and business executives in Beijing, in comments reported by the official Xinhua news agency on Sunday.

“Since the start of the year, China’s economic performance has overall made a steady start, and this will help to stabilize everyone’s expectations,” he said. “But at the same time, we must see that there are still quite a few unstable and uncertain factors in the domestic and international environment, and deep-seated problems are constantly arising.”

Article source: http://www.nytimes.com/2013/04/16/business/global/in-surprise-recovery-in-china-loses-steam.html?partner=rss&emc=rss