China’s QE3 Growth Slows to 7.4 Percent

on Oct 18, 2012
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China’s economy expanded 7.4 percent in the third quarter relative to a year earlier, the Financial Times reported on 18 October 2012. And while this is the seventh successive quarter of slowing GDP growth, the data also showed signs that China was close to the bottom of its downturn. Industrial production and investment as well as retail sales accelerated at the end of the quarter, prompting the Chinese Premier Wen Jiabao to declare that the worst was probably over.

**China’s Economy Expands 7.4 Percent**
China’s National Bureau of Statistics said that in the third quarter of 2012 GDP grew 7.4 percent from a year earlier. And while such a figure would be reason for a celebration in the Eurozone countries for instance, it is well below both the 9.3 percent expansion in 2011 and the nearly 10 percent average growth rate observed in China over the last three decades.

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In addition, since in the past three years East Asia accounted for nearly half of global growth, China’s slowdown becomes all the more significant for the global economy. Even if China’s economy improves in the coming months, China might record its weakest annual growth since 1999 on account of slowing domestic investment and weak demand from major export markets, particularly debt-ridden Europe which for years has been China’s largest export market.

!m[Chinese Economy Misses Beijing-Set Target ](/uploads/story/597/thumbs/pic1_inline.png)The FT quotes Bert Hofman, World Bank chief economist for East Asia, as saying that China is experiencing a “double-whammy”, where the growth slowdown is driven by weaker exports and weaker investment growth.
**Below Government Targets**
While the 7.4 percent QE3 growth is in line with what some analysts had anticipated, Reuters reports that it missed the official targets set by Beijing for the first time since the first quarter of 2009. The Chinese government has set a target of 7.5 percent growth for the full year, reduced during 2012 from a previous target of 8 percent.

China’s Premier Wen Jiabao however remains confident about achieving the yearly goal, noting that there were signs that the economy could be stabilising at lower levels. “Exports have gradually recovered, consumption has grown steadily, price inflation has clearly receded, the job market has been very good,” commented Mr Wen, as quoted by the FT.

Sheng Laiyun, a spokesman for China’s statistics bureau, in turn said at a press briefing that the economy would show a moderate rebound in the fourth quarter and described China’s employment situation as stable during the first months of the year. “We can tentatively conclude that the economy is shifting from a state of slowing down to one of bottoming out,” noted Mr Sheng, as quoted by Bloomberg.
**The Worst Probably Over**
And while China’s QE3 growth may be weaker than what was expected at the beginning of 2012, the latest figures also show signs of improvement at the end of the quarter. Industrial production accelerated in September, increasing by 9.2 percent relative to the same period in 2011, whereas fixed asset investment accelerated to 20.5 percent growth in the first nine months from 20.2 percent in the first eight months. Retail sales in turn went up from 13.2 percent growth in August to 14.2 percent in September.
“It may take another couple of quarters for growth to significantly recover, but we believe the risk for a hard landing is increasingly smaller,” notes Lu Ting, an economist at Bank of America Merrill Lynch, as quoted by the FT.

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