China economy logs weakest growth since 2009

October 19, 2015 11:30 AM

Policy support

While Chinese officials put a brave face on China's economic woes, describing the slowdown as being "reasonable", senior leaders have occasionally voiced worries.

President Xi Jinping told Reuters in an interview over the weekend that the government has concerns about the economy and was working hard to address them.

Policymakers think they can stem a rapid rundown of the country's foreign exchange reserves and ease pressure on the currency by pump-priming the economy to meet this year's growth target of about 7 %, sources involved in policy discussions say.

But key parts of the economy are still losing steam.

Factory output in September rose 5.7 % from a year ago, missing forecasts for a 6 % rise, and fixed-asset investment (FAI) climbed 10.3 % in the first nine months, below estimates of 10.8 %.

September retail spending alone bucked the trend, growing at an annual rate of 10.9 %, slightly beating forecasts for 10.8 %.

"The overall downturn pressure on the Chinese economy is still huge," said Zhou Hao, a senior economist at Commerzbank in Singapore, who expects government will lower the annual growth target in its next five-year plan at the end of this month.

The latest Reuters quarterly poll showed economists expect the central bank will cut interest rates by another 25 basis points (bps) and lower the amount banks must hold as reserves by 50 bps by year-end.

The same poll predicted economic growth of 6.8 % in the fourth quarter, easing to 6.7 % in the first of 2016.

China's consumer inflation cooled more than expected in September, while producer prices extended their slide to a 43rd straight month, highlighting the urgency for the central bank to tackle deflationary pressures.

To shore up growth, the government has quickened spending on infrastructure and eased curbs on the ailing property sector. The latter have helped revive weak home sales and prices but have not yet reversed a sharp decline in new construction.

Data released separately on Monday showed China's government spending surged almost 27 % in September from a year ago.

Some market watchers believe current growth is much weaker than government figures, though officials deny allegations that the numbers are inflated.

Despite weak exports and imports, factory overcapacity and a cooling property market, Beijing reported annual economic growth of 7.0 % in the first two quarters, in line with its full-year target.

However, some economists think the statistics may be underestimating strong consumption and service sector growth, putting too much weight on the cyclical and structural weaknesses in manufacturing.

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