March 29, 2024

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

Britain and China Seal Trade Deals

In announcing the deals, worth about $2.2 billion, the British prime minister, David Cameron, restated the goal of doubling trade between the two countries to $100 billion by 2015. Mr. Wen said that he was “confident” of meeting that aim.

“The purpose of my visit is to promote communication, cooperation and development,” Mr. Wen said during a news conference in London. Mr. Cameron said China presented a “huge opportunity” for British companies.

Mr. Wen is more than halfway through a four-day European tour that has taken him to Hungary and was to see him travel to Germany late Monday.

After a meeting with the Hungarian prime minister, Viktor Orban, over the weekend, Mr. Wen said that China had “total trust in Europe’s economic development” and would “consistently support Europe and the euro.”

In Britain, Mr. Cameron’s government is trying to strengthen trade relations with the faster-growing China. The goal is to increase exports and bolster Britain’s manufacturing industry to speed up an economic recovery that has recently started to slow.

British exports to China have grown 20 percent since November, when Mr. Cameron visited Beijing with a business delegation. China has become the third-largest source of British imports, after Germany and the United States, according to the Office for National Statistics.

Britain and China agreed Monday to increase infrastructure investments in both countries and grant British businesses better access to China’s civil engineering and research markets. A ban on British poultry exports to China, which was put in place as a result of avian flu cases in 2007, was lifted and Britain is to sell more pigs and pig meat to China.

Diageo, the British spirits company, said Monday that Chinese regulators had approved its acquisition of an additional 4 percent stake in the liquor maker Sichuan Chengdu Quanxing, giving Diageo control over the Chinese rival.

Other deals announced after the talks included an agreement between Weatherly International, a British mining company, and the East China Mineral Exploration and Development Bureau to cooperate on the development of a lead zinc mine in Namibia. BG Group, the British natural gas company, also signed a deal with Bank of China to receive up to $1.5 billion in financing.

During the news conference, Mr. Wen dodged questions about China’s human rights record. “On human rights, China and the U.K. should respect each other, respect the facts, treat each other as equals, engage in more cooperation than finger-pointing and resolve our differences through dialogue,” he said.

On the same issue, Mr. Cameron merely repeated a statement from his last China visit, saying, “We do believe the best guarantor of prosperity and stability is for economic and political progress to go in step together.”

Mr. Wen was to meet Chancellor Angela Merkel of Germany in Berlin on Monday. China and Germany are expected to announce 30 different cooperation and trade agreements on Tuesday, according to the German foreign ministry.

As part of those talks, officials were to discuss a possible order for superjumbo jets that has caused some controversy. China is pushing the European Union to abandon plans to regulate the greenhouse gas emissions of airlines, including foreign-owned ones, flying to and from the 27-country bloc. Beijing warned earlier this month that it could block its carriers from purchasing new planes built by the European plane maker Airbus if Brussels pressed ahead with the plans.

The issue came to a head at the Paris Air Show last week, when Chinese officials sought to derail an order for 10 Airbus A380 superjumbo jets by Hong Kong Airlines, a domestic carrier that operates between Hong Kong and the Chinese mainland. Airbus had planned to announce the $3.8 billion contract, which had already been signed by the airline, at the show, but Beijing declined to give its final approval, according to people with knowledge of the discussions.

Formal approval of the deal was expected to be granted eventually, said the people, who requested anonymity because of the political sensitivity of the situation. They said, however, that further Chinese orders of Airbus jets had been delayed, including one sizable order that Airbus had hoped to announce during Mr. Wen’s visit to Germany. It was unclear whether that deal would now be modified or postponed.

Nicola Clark contributed reporting from Paris.

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