GDP figures showing the Chinese economy grew at 6.8 percent in the final quarter of 2015 indicate a worrying downward trend, said an analyst on Tuesday (January 19), as the weakest growth since the financial crisis added pressure on the government to restore investor confidence.
Concerns about China’s policy making ability have shot to the top of global investors’ risk lists for 2016 after a renewed plunge in its stock markets and yuan currency stoked worries that the economy may be rapidly deteriorating.
After being a major locomotive of global growth in recent years, China is locked in the midst of a protracted slowdown.
Weak exports, factory overcapacity, slowing investment, a soft property market and high debt levels are all compounding problems for the government as it tries to transition from a centrally planned economy to a more market-oriented model that will require leaders to cede a large degree of control.
Growth in fourth-quarter GDP eased as expected to 6.8 percent from a year earlier, down from 6.9 percent in the third quarter and the weakest pace of expansion since the first quarter of 2009.
Full-year growth of 6.9 percent, enviable by Western standards, was China’s poorest showing in a quarter of a century.
“The big concern though is if you take the quarter-on-quarter data of 1.6 percent and annualize it, then you come up with an annualized growth rate of 3.2 percent. Now that is dangerous. Not because of the digits and all this false precision, it’s just because it does herald a very severe slowdown in the Chinese economy, and that’s really the point of this. Forget the numbers, look at the trend, and the trend is saying severe slowdown. That’s the worrying bit,” said Enzio Von Pfeil, an investment strategist at Private Capital Limited.
Other data on Tuesday suggested the world’s second-largest economy lost more steam in December, dashing hopes that a year-long flurry of government stimulus would finally kick in.
Von Pfeil suggested that a combination of continued fiscal and monetary easing was needed for the government to keep the slowdown from turning into a full-blown meltdown
“What it (the Chinese government) needs to do is one, to let the Renminbi go. That will then mean that it can ease monetarily. Two, it must ease fiscally. It must put in place massive fiscal spending programs because in China, Keynes works, people are willing to build roads and bridges. But thirdly, and crucially it must stop interfering in markets, because the more that it interferes in markets, the more problems it creates, it exacerbates the situation, it’s like throwing oil on fire. So monetary side, expansion, fiscal side expansion, and stop meddling in the markets,” he said.
The China statistics bureau told a news conference that the 2015 growth had been “hard won”, adding that the structural adjustment of the Chinese economy is at a crucial stage.
That highlights the difficulties Beijing will face in getting policy – be it monetary easing, reforms, increased fiscal spending or cutting red tape – to translate into actual growth in 2016.
Premier Li Keqiang said in December the government would “take a knife” to loss-making zombie companies as parts of efforts to reduce overcapacity in the system, but that would require tough political decisions such as allowing more bankruptcies and potential layoffs.
Other top priorities Beijing has announced for 2016 include shrinking a glut of unsold homes, deleveraging balance sheets, reducing costs for businesses and encouraging new technology. (Reuters)
