China's 2018 growth slows to 28-year low,
more stimulus seen
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[January 21, 2019]
By Kevin Yao and Yawen Chen
BEIJING (Reuters) - China's economy cooled
in the fourth quarter under pressure from faltering domestic demand and
bruising U.S. tariffs, dragging 2018 growth to the lowest in nearly
three decades and pressuring Beijing to roll out more stimulus to avert
a sharper slowdown.
Growing signs of weakness in China -- which has generated nearly a third
of global growth in recent years -- are fueling anxiety about risks to
the world economy and are weighing on profits for firms ranging from
Apple to big carmakers.
Policymakers have pledged more support this year to reduce the risk of
massive job losses, but have ruled out a "flood" of stimulus like that
which Beijing has relied on in the past, which quickly juiced growth
rates but left a mountain of debt.
"The government has means to support the economy. They can expand
infrastructure spending and they can cut banks' reserve requirement
ratio. So we don't need to worry about capital spending," said Naoto
Saito, chief researcher at Daiwa Institute of Research in Tokyo.
"But the problem lies in consumption. As the U.S. and China clash on
many fronts, consumer sentiment appears to have been hurt. Until now,
solid wage growth has been supporting consumption but now there appears
to be a sense of vague anxiety about the future."
Fourth-quarter gross domestic product (GDP) grew at the slowest pace
since the global financial crisis, easing to 6.4 percent on-year as
expected from 6.5 percent in the third quarter, the National Bureau of
Statistics said on Monday.
That pulled full-year growth down to 6.6 percent, the slowest annual
pace since 1990. GDP in 2017 grew a revised 6.8 percent.
With support measures expected to take some time to kick in, most
analysts believe conditions are likely to get worse before they get
better, and see a further slowing to 6.3 percent this year.
Some China watchers believe actual growth is already weaker than
official data suggest.
Despite a raft of policy easing steps so far, December data released
along with GDP showed continued weakness across broad areas of the
economy at the end of last year.
Factory output picked up unexpectedly to 5.7 percent from 5.4 percent,
but it was one of the few bright spots, along with a stronger services
While regulators have been fast-tracking construction projects, most of
the gain appeared due to higher mining and oil production. Reuters
calculations showed average daily steel output hit its lowest level
since March as producers cut output amid shrinking profit margins.
Despite the slowing economy, Chinese officials also pledged to continue
with a crackdown on air pollution that has weighed on the industrial
Other data on Monday showed investment and retail sales continued to
languish, while the jobless rate edged higher.
Fixed-asset investment rose 5.9 percent in 2018, the slowest in at least
22 years, as a regulatory crackdown on riskier financing and debt
weighed on local government spending early in the year.
Property investment is also looking wobbly, with analysts waiting to see
if Beijing will risk loosening restrictions on home buyers that have
kept a potential housing bubble in check.
Chinese consumers are clearly feeling the pressure.
Though retail sales growth picked up marginally in December to 8.2
percent, the consumer strength gauge is around the weakest in 15 years.
Auto sales in the world's biggest car market shrank for the first time
since the 1990s.
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A woman works on a production line manufacturing paper tableware at
a factory in Hangzhou, Zhejiang province, China January 21, 2019.
Officials recently pledged to boost consumer demand for big-ticket
items from cars to appliances. But gains in disposable income are
slowing, while household debt is on the rise.
Other data in recent weeks showed exports and imports unexpectedly
shrank last month, while falling factory orders point to a further
drop in activity in coming months and more job shedding.
Some factories in Guangdong - China's export hub - have shut earlier
than usual ahead of the long Lunar New Year holiday as new business
Even if China and the United States agree on a trade deal in current
talks, which would be a tall order, analysts said it would be no
panacea for China or its exporters.
Demand is weakening globally, not just in the United States. Net
exports actually dragged on China's growth by 8.6 percent last year,
Reuters calculations based on official data showed.
Trade negotiators are facing an early March deadline and Washington
has threatened to sharply hike tariffs if there are no substantial
signs of agreement.
White House officials have given markedly different views on
progress so far. China's Vice Premier and lead negotiator Liu He is
due to visit Washington for the next round of talks at the end of
To free up more funds for lending, particularly to vulnerable
smaller firms, the central bank has cut the amount of reserves that
banks need to set aside as reserves (RRR) five times over the past
year, and guided borrowing costs lower.
Further RRR reductions are expected in coming quarters, but most
analysts do not see a cut in benchmark interest rates yet, as
policymakers wait to see if earlier steps begin to stabilize
More forceful easing could also pressure the yuan and aggravate high
debt levels, with money going into less efficient or speculative
investments as it often has in the past.
The government may unveil more fiscal stimulus during the annual
parliament meeting in March, including bigger tax cuts and more
spending on infrastructure projects.
Some analysts believe it could deliver 2 trillion yuan ($295.13
billion) worth of cuts in taxes and fees this year, and allow local
governments to issue another 2 trillion yuan in special bonds
largely used to fund key projects.
China has ample room for policy adjustments, statistics bureau chief
Ning Jizhe said on Monday.
Still, some analysts do not expect the economy to bottom out
convincingly until summer.
(Additional reporting by Stella Qiu and China Monitoring Desk)
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