China's economy, the world's second largest, may have grown around 7.6 per cent in 2013, its weakest growth since 1999, with latest economic figures indicating sluggish economic activities in the last quarter.
China's latest economic figures, especially the purchasing managers' index (PMI) in both factory activity and the services sector, indicated sagging momentum in December, with the country's growth softening slightly last quarter, economists said. The National Bureau of Statistics (NBS) is scheduled to release China's macroeconomic data for the fourth quarter and the entire year of 2013 later this month.
China's economy expanded by 7.7 per cent in the first nine months of 2013. GDP growth in the third quarter accelerated to 7.8 per cent from 7.5 per cent in the second. On December 25, a report submitted by the Cabinet to the parliament said China's economic growth in 2013 is likely to stand at 7.6 per cent. If confirmed, it would be the weakest growth since 1999 in the aftermath of the Asian financial crisis.
Reporting to the Standing Committee of the National People's Congress, the top legislature, Xu Shaoshi, minister of the National Development and Reform Commission said international and domestic economic conditions have changed. Xu said China's economy faced many problems.
Service industries have still to realise their full potential, strategic emerging industries are in their infancy, and industries such as steel, cement, electrolytic aluminum, plate glass and shipbuilding experienced overcapacity.
Financial risks are also looming, with a hefty proportion of debt financing concentrated on public infrastructure projects that only generate low returns in the long run. There is already oversupply in the manufacturing and real estate sectors, he was quoted as saying by the official Xinhua news agency.
If China fails to handle its government debt properly, "it will easily trigger systemic financial danger", Xu warned. The PMI for the non-manufacturing sector, a key measure of business activity in the services sector, fell to a four- month low at 54.6 in December, as most industries strived to find new growth engines amid slowing exports.
The PMI figure was released on Friday by the NBS and the China Federation of Logistics and Purchasing (CFLP). On Wednesday, NBS and CFLP said that the PMI for the manufacturing sector, a key measure of factory activity, had dropped to 51 in December, the lowest since August of 2013.
A HSBC survey, released on Thursday, showed the final reading of China's manufacturing PMI dropped to 50.5 in December from 50.8 in November, mainly due to slower output growth, the report said.
According to the HSBC survey, the subindex of new export orders declined for the first time since August. Though a reading above 50 indicates expansion, falling PMIs in December reflected a fourth-quarter cool-down in both factory activity and business activity in the services sector. Drops in both official and HSBC PMI readings last month provided evidence that the country's economy had lost steam in December, economists said.
Lu Ting and Zhi Xiaojia, China economists with Bank of America Merrill Lynch, said in a research note that the NBS/CFLP manufacturing PMI slowed down slightly more than expected to 51 in December, lower than market consensus of 51.2. "This is the first moderation in six months, suggesting that the growth recovery since mid-July (of 2013) might have started to lose some steam," Xinhua quoted them as saying.
In quarter-on-quarter terms, economic growth could soften from 2.2 per cent in the third quarter of 2013, to around 2 per cent in the fourth quarter and 1.7 per cent to 1.8 per cent throughout 2014, they predicted.
Lu and Zhi, however, said year-on-year growth of China's economy could remain unchanged at 7.8 per cent in the fourth quarter and then rise to 8 per cent in the first and second quarters this year, thanks to a drop in the comparison base. They also forecast industrial production growth could dip to 9.8 per cent year on year in December.
For the fourth quarter of 2013, industrial production growth could be 10 per cent, down slightly from 10.1 per cent in the previous quarter. Growth of fixed-asset investment could also edge down to 19.8 per cent year on year in December, from 19.9 per cent in November. Retail sales growth may slow down to 13.5 per cent year on year in December, from 13.7 per cent in November.
Wang Tao, chief China economist at UBS, also expects the upcoming set of data to show the country's economy losing steam in December. She anticipates growth moderations in key economic indicators including exports, fixed-asset investment and industrial production. GDP growth could also slow from 7.8 per cent year on year in the third quarter to 7.6 per cent in the fourth quarter.
China's 2013 growth softened into the year-end, but Wang believes it not enough to sway Beijing's policy course. "Absent a big surprise, December's data set should have little impact on China's current policy direction.... Against this backdrop, we maintain our 2014 GDP growth forecast of 7.8 per cent," she said.
Lu and Zhi also expect the Chinese government to maintain neutral monetary and fiscal policies for the next couple of quarters while increasing efforts on structural reforms.
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