China Economic Growth Slows, May Prompt Wen to Ease Policies (2)

Another Good Article from Bloomberg News :

"China Economic Growth Slows, May Prompt Wen to Ease Policies (2)
2012-01-17 02:51:33.263 GMT
　
(Updates with economist’s comment in the fourth paragraph.)
By Bloomberg News
Jan. 17 (Bloomberg) -- China’s economy expanded at the slowest pace in 10 quarters as export demand moderated and a prolonged campaign against consumer and property-price gains cooled growth.
Gross domestic product rose 8.9 percent in the fourth quarter from a year earlier, the statistics bureau said in Beijing today. Growth fell below 9 percent for the first time since mid-2009, based on previously reported data, and compared with the 8.7 percent median forecast in a Bloomberg News survey of 26 economists. Industrial production in December increased
12.8 percent from a year earlier, it said.
The report may increase pressure on Premier Wen Jiabao to tilt policies toward sustaining growth in the world’s second- biggest economy, as policy makers predict a "grim" outlook for exports and inflation concerns diminish. Liang Wengen, China’s richest man and chairman of equipment maker Sany Heavy Industry Co., told Wen this month that construction-machinery demand is weak and called for an increase in infrastructure investment.
"Decelerating GDP growth will provide more room for policy makers to shift towards a pro-growth bias after an extended tightening cycle," Jing Ulrich, chairman of global markets for China at JPMorgan Chase & Co., said in a note after the data.
"At this juncture, the challenge for policy makers is to implement measures that boost domestic demand without setting back progress made in curbing inflation."
Stocks Fall
The Shanghai Composite Index was little changed at 10:49 a.m. local time, after gaining as much as 0.7 percent before the data was announced. Asian stocks rose after the report boosted speculation the government may take extra measures to spur growth amid concerns about Europe’s debt crisis. The MSCI Asia Pacific Index gained 1 percent.
Full-year economic growth slowed to 9.2 percent from 10.4 percent in 2010, today’s report showed. The gain in industrial production compared with the median estimate of 12.3 percent in a Bloomberg survey and a 12.4 percent increase in November.
"The data confirmed no hard landing is likely, more so given the loosening stance already adopted by the policy makers," said Shen Jianguang, Hong Kong-based chief greater China economist for Mizuho Securities Asia Ltd. Still, there is "no room for complacency, given the risks of property sector meltdown and global crises," said Shen, who expects more loosening in credit, an expansionary fiscal policy and loosening in the property sector in the second quarter.
Europe Downgrades
China’s benchmark stock index fell the most in a month yesterday, capping a four-day 3.5 percent decline, on concern Europe’s worsening debt crisis will hurt exports to the nation’s biggest market and as expectations waned of an imminent cut to banks’ reserve requirement ratios.
The yuan dropped the most in more than two months yesterday after Standard & Poor’s stripped France of its top credit rating and downgraded eight other euro-area nations. Twelve-month non- deliverable yuan forwards have traded at a discount to the onshore spot rate since Nov. 20, apart from one day, reflecting increased bets the Chinese currency will weaken against the U.S.
dollar as the economy cools.
Banks including BNP, Nomura Holdings Inc. and UBS AG forecast weaker economic expansion this quarter as overseas sales moderate further and government measures to rein in property prices hurts demand for goods including steel, cement and home appliances. UBS’s Hong Kong-based economist Wang Tao estimates growth will ease to 7.7 percent, while Nomura’s chief China economist Zhang Zhiwei forecasts 7.5 percent or lower.
Their projections were made before today’s release.
Lack of Credit
Sany’s Liang, who topped Forbes Asia’s 2011 China rich list with an estimated wealth of $9.3 billion, was among business leaders who met Wen during his visit to Hunan province earlier this month. Zhan Chunxin, chairman of competitor Zoomlion Heavy Industry Science & Technology Co., who was also at the meeting, complained a lack of access to credit was hurting customers and suppliers.
Fixed-asset investment excluding rural households expanded
23.8 percent last year, compared with the median 24.1 percent estimate in a Bloomberg survey. Retail sales rose 18.1 percent in December from a year earlier, today’s report showed.
The People’s Bank of China last month allowed banks to set aside less of their deposits as reserves and December’s new loans were the highest since April, signs the government is loosening monetary policy to encourage lending even as it maintains curbs on the residential real-estate market to bring down home prices.
Adding Cash
Expectations of another reduction before the weeklong Lunar New Year holiday that starts Jan. 23 are receding. The PBOC halted sales of bills and repurchase contracts at the end of December to add funds to the financial system. It will inject more cash through 14-day reverse repurchase operations today and Jan. 19, two traders who declined to be identified said yesterday, after the seven-day repurchase rate, which measures interbank funding availability, surged to the highest since July.
The central bank may "front-load" policy easing into the first half, with one interest-rate cut in March and three reductions in banks’ reserve requirements, according to Nomura’s Zhang. Peng from BNP estimates four to five reductions in the ratio through the year.
"Any easing won’t be as aggressive as after the 2008 global financial crisis," said BNP’s Peng. Officials will remain wary of inflation, which remained above the government’s
4 percent in 2011 and may rebound later this year, he said.
Biggest Risks
Consumer-price gains averaged 5.4 percent last year, exceeding the government’s 4 percent target every month, even as the pace slowed to 4.1 percent in December from a year earlier.
A deeper recession in Europe, which may cause a sharper slump in demand for China’s exports, and a "disorderly correction" in the property market are the biggest risks to the economy this year, said Chang Jian , a Hong Kong-based economist at Barclays Capital Asia Ltd.
The world’s largest exporter may see shipment growth halve this year from a 20 percent pace in 2011, while property investment, which accounts for about a fifth of the nation’s fixed-asset spending, may expand at half last year’s rate, according to Chang. " "