China GDP Growth Slows Quite Rapidly In Q3 2008

China’s economic growth rate slipped into single digits in the third quarter for the first time in at least four years under the impact of the global credit crisis and weakness in the domestic property sector. Annual gross domestic product growth slowed more sharply than expected to 9.0 per cent from 10.1 per cent in the second quarter, the National Bureau of Statistics (NBS) said on Monday.



It was not immediately possible to pinpoint when growth was last weaker because China does not publish new quarterly data when it revises its annual GDP figures. nor was it possible to precisely calibrate the speed of the slowdown since we do not have seasonally adjusted quarter on quarter data. China's economic expansion was the weakest since at least the second quarter of 2003, when growth slumped because of the severe acute respiratory syndrome, or SARS, epidemic.

Industrial production slowed to 11.4 per cent in the year to September, the lowest rate since 2002, suggesting that the economy was losing momentum as the quarter went on. However, the pace of retail sales and fixed-asset investment growth both accelerated last month, beating forecasts and providing reassurance to policy makers counting on domestic demand to take up the slack from ebbing exports.

The property market, which accounts for about a quarter of fixed-asset investment, is in almost in free fall due to tight credit and government curbs. Home sales by volume plunged 55.5 percent and 38.5 percent in Beijing and Shanghai in the first eight months from a year earlier, the official Xinhua News Agency reported, citing the China Real Estate Association. This decline is really still to show its ugly face in the data though, since urban fixed-asset investment climbed 27.6 percent in the first nine months from a year earlier, after a 27.4 percent increase through August, today's data showed.

Retail sales rose 23.2 percent last month from a year earlier, matching the gain in August and close to the fastest pace in at least nine years.

Urban disposable incomes for the first nine months rose 14.7 percent to 11,865 yuan ($1,737) from a year earlier. Rural cash incomes climbed 19.6 percent to 3,971 yuan. Those numbers were boosted by inflation.



The fifth quarter of slowing growth may exacerbate declines this year in iron ore, copper and oil prices and undermine demand for exports within Asia, where economies are already contracting. The cabinet announced yesterday tax cuts for exporters and increased infrastructure investment and the central bank may be poised to cut interest rates for the third time this year.

Steel-product output in China, the world's biggest producer and user of the alloy, fell 5.5 percent in September from a year ago to a seven-month low as weak demand and falling prices forced mills to pare production.

"China's crude steel output fell to 39.6 million tonnes, down 7% from August and 9.1% year-on-year, indicating that many northern mills were cutting production, said market sources. China's steel production ban for the Olympics lasted from July to September 20, so a fall in September output meant that mills were not only not resuming production, but reducing it further in the face of weak demand, said the sources. Several mills in Hebei, China's biggest crude steelmaking province, have been cutting output or have even closed down due to sluggish demand. Some were dumping products in the market in return for cash. September output for major finished products like rebar and plate rose, however, inched up in the month but analysts said this may be due to lower crude steel exports in the month. China exported 7.31 million tonnes of crude steel in September, 1.42 million tonnes or 13.5% less..."

Output was 45.9 million metric tons last month, according to figures provided today by China Mainland Marketing Research Co., which releases data on behalf of National Bureau of Statistics. Production rose 8.1 percent to 445.2 million tons in the first nine months from a year earlier.

Prices of hot-rolled coil, a benchmark product, have fallen to 3,645 yuan a metric ton from a record 5,957 yuan in June. The slump has led to losses at almost all steelmakers, JPMorgan Chase & Co.'s analyst Zhang Feng said recently in a research note.


Export growth may plummet from 22 percent in the first nine months of this year to ``zero or even negative growth'' in 2009, according to Stephen Green, head of China research at Standard Chartered Bank Plc in Shanghai.

The closure last week of a big toy factory in southern China dramatised the difficulties facing the economy, which have prompted steel and aluminium firms to slash output because of slumping prices. Steel prices in China have fallen about 20 per cent over the past three months and there are reports of small steelmakers being forced to close because of shrinking demand.

Rio Tinto Give China Slowdown Warning

Rio Tinto’s chief executive, Toma Albanese, warned on Wednesday about the health of China and said the slowdown in one of the world’s fastest growing economies had led the mining company to revise its capital spending plans. Mr Albanese said there had been a marked reduction in Chinese commodity demand from the overheated levels of 2007 and added that the “vast majority of Chinese aluminium producers are now making operating losses.”

As the credit crisis unfolded over the past year, one of the few certainties in the global economy seemed to be China’s ability to plough on regardless at double-digit growth rates. Not any more. With Wall Street in tatters and Europe’s and Japan’s economies faltering, many investors are beginning to ask if China too might stumble badly. After five turbo-charged years of accelerating growth, the Chinese economy is clearly slowing.

Housing Market Evidence of Slowdown

The local government in Shanghai yesterday raised its ceiling on mortgage lending to households under a government-run program, uping available funding by 20 percent in an attempt to encourage families to buy apartments in the city. Eligible households will be allowed to borrow as much as 600,000 yuan ($87,679) starting today, up from 500,000 yuan, the city's public housing fund agency said in a statement yesterday.

Under Shanghai's mortgage program, most households are allowed to spend as much as 7 percent of their monthly salaries to repay loans. Employers must match workers' contributions and borrowers receive preferential bank lending rates. Households meeting certain requirements can spend as much as 15 percent of salaries, and they are the ones eligible for the new ceiling.



The loan program covered 3.42 million people at the end of June, according to the agency. About 8.8 percent of people covered make the larger repayments, the Shanghai Daily said in June, citing the housing agency.

Housing prices in Shanghai, China's biggest financial center, fell 19.5 percent in the third quarter from the previous three months as the volume of sales slumped, real estate broker Savills Plc said yesterday. Average transaction prices, which rose to a record in the second quarter, dropped to 9,092 yuan per square meter, the London-based broker said in a report.

The volume of transactions slid 39 percent from the second quarter and two-thirds from the same period last year to 2.9 million square meters, according to Savills.

China's stocks also fell for a second day today, with metal producers leading the way, on concern profits will decline as economic growth slows.

Jiangxi Copper Co., China's second-biggest producer of the metal, slid 5.9 percent after copper and zinc futures slumped by the exchange-imposed 4 percent daily limit in Shanghai. China Shenhua Energy Co., the nation's largest coal producer, fell 3.2 percent as more affordable oil reduced the allure of alternative energy sources. Citic Securities Co. fell 2.9 percent after a second competitor in as many days reported a slump in profit.

Chinese Exports Maintain Strong Momentum In August

China’s trade surplus hit a record $29.3bn in September as exporters succeeded in defying forecasts of falling international demand – for the moment, at least.

Exports rose 21.5 percent from a year earlier to $136.4 billion after gaining 21.1 percent in August, according to data from the Chinese customs bureau. China has cut interest rates twice in the last month in an attempt to stimulate the economy as the worst financial crisis since the Great Depression undermines global growth. The surplus adds to the already existing $1.8 trillion of foreign-currency reserves.


The expanding trade surplus – up from the previous record of $28.7bn in August – will bolster China’s slowing gross domestic product growth rate but could also refocus international attention on Beijing’s effort to support exporters in recent months by slowing the renminbi’s appreciation against the US dollar.

Chinese imports grew 21.3 per cent year-on-year in September, their weakest performance for more than a year.

It is clear that the focus of government policy has shifted away from combating inflation, which hit a 12-year high of 8.7 per cent in February, and toward supporting growth. China remains relatively insulated from the current international financial turmoil. Major state banks have been extensively recapitalised in recent years and have only limited international exposure, while the government has been enjoying rapid growth in tax revenues and over $1.8bn in foreign exchange reserves.

However, local investors are already suffering from dramatic falls in stock prices and the slump in urban property markets, increasing vulnerability to any fall in export demand.

August PMI Indicates Continuing Contraction In Chinese Manufacturing

Manufacturing in China contracted for a second month in August, according to the latest reading on the manufacturing PMI. The China Federation of Logistics and Purchasing Purchasing Managers' Index registered a seasonally adjusted 48.4 in August, unchanged from July.



The Chinese authorities have become increasingly concerned that the impact of a global slowdown may weigh heavily on their export oriented economy, and they have recently attempted to put a brake on gains in the yuan and have also loosened lending quotas to help exporters and small businesses following four quarters of slowing economic growth. China's growth slowed to a 10.1 percent annual rate in the second quarter of this year, coming down quarter by quarter from the high of 12.6 percent attained in the second quarter of 2007.

The government is considering spending an extra 400 billion yuan ($58 billion) to stimulate the economy, according to reports in Chinese news media. A plan awaiting approval from the State Council and the National People's Congress includes 220 billion yuan of spending and 150 billion yuan of tax cuts, the Beijing-based Economic Observer newspaper reported last week. In addition China has tripled railway spending this year to 300 billion yuan. The current five-year plan, which runs through 2010, calls for investing almost 4.8 trillion yuan on power stations, waterways, roads and other infrastructure projects -- more than the combined output of Taiwan, Thailand and Vietnam. Reconstruction after May's Sichuan earthquake could cost another 1 trillion yuan, the government says.

Monetary policy may also be loosened, and the People's Bank of China said in August that it would ``fine-tune'' monetary policy to cushion the economy as overseas demand weakens. This is being widely interpreted as meaning that the central bank will reduce the portion of deposits banks are required to hold as reserves - possibly by as much as 2.5 percentage points, bringing the level down to 15 percent.

China Investment In Fixed Assets Accelerates

China's factory and property spending growth accelerated in July, fueled by rebuilding after the Sichuan earthquake in May and snowstorms in January and February. Urban fixed-asset investment rose 27.3 percent to 7.22 trillion yuan ($1 trillion) year on year in July, according to the latest data from the Chinese statistics bureau, after gaining 26.8 percent in the first half. China is at the present time busy rebuilding roads, power lines, factories and homes after the worst snowstorms in half a century and an earthquake that killed more than 69,000 people.





Railway spending climbed 35.8 percent in the first seven months to 105 billion yuan, up from 20.4 percent for the first half. China plans to spend 3.8 trillion yuan on transportation infrastructure in its five-year plan running through 2010.

Growth in spending in real-estate development slowed to 30.9 percent from 33.5 percent. Ferrous-metals investment climbed 31.6 percent from 27.5 percent. Non-ferrous metals rose 40.5 percent after climbing 39.2 percent.

China's Industrial Output Slows in July 2008

China's industrial production grew at the slowest pace since February 2007 on weaker export orders and factory shutdowns to clear the air for the Olympic Games. Production rose 14.7 percent in July from a year earlier, the statistics bureau said today, after gaining 16 percent in June.




Weakness in economies around the world have reduced orders for export products, while higher fuel and raw-material prices deterred some companies from expanding. The slowdown, exacerbated by attempts to prevent pollution in Beijing during the Olympics, suggests an acceleration in China's July export growth is unlikely to be sustained.

The yuan fell to 6.8620 against the dollar as of 5:05 p.m. in Beijing after closing at 6.8570 yesterday.

Textile output rose 10 percent in July from a year earlier after gaining 12.4 percent in June. Steel products growth weakened to 7 percent from 11 percent. Cement output rose 6.3 percent, down from 7.9 percent. Growth in electricity output slowed for the fourth straight month, climbing 8.1 percent after an 8.3 percent gain in June.

China's economy expanded 10.1 percent in the second quarter from a year earlier, down from 11.9 percent in all of 2007. Still, rising domestic demand may help sustain industrial production to some extent. Retail sales jumped 23.3 percent in July from a year earlier.

China Retail Sales Rise At Record Pace In July

China's retail sales expanded at the fastest pace in at least nine years in July as incomes and prices climbed in the world's fastest-growing major economy. Sales rose 23.3 percent to 862.9 billion yuan ($126 billion) after gaining 23 percent in June, the statistics bureau said today.



As we can see, as inflation is falling back the real rate of increase in retail sales is accelerating. This, in part, is a result of increases in wages.

According to the most recent data from the Chinese statistical office, in the first half year of 2008, the average wage of on-duty staff and workers in urban units reached 12,964 yuan, a year-on-year increase of 18.0 percent. Of the total, the average wage of state-owned units was 13,800 yuan, up by 17.0 percent; that of collective-owned units was 7,789 yuan, rose by 18.9 percent; and that of units of other types of ownership was 12,610 yuan, an increase of 19.2 percent.

Urban disposable income increased 14.4 percent in the first half, or 6.3 percent after stripping out inflation. Also per capita consumption expenditure was 5,490 yuan, up by 13.7 percent over the same period of the previous year, a real increase of 5.7 percent after deducting price factors. China aims to increase consumption to reduce dependence on investment and overseas sales for economic growth.

The problem with this scenario at the present time is the impact on producer prices. China's producer prices climbed at the fastest pace since 1996 in July on energy and commodity costs, underscoring the significant risk of second round effects and the possibility of a rebound in consumer-price inflation. Factory-gate prices rose 10 percent in July from a year earlier, the statistics bureau said yesterday, after gaining 8.8 percent in June.



The acceleration in retail sales and the surge in fixed asset formation at a time when industrial output is weakening and exports are slowing means only one thing as far as I am concerned: a correction is coming.

Today's data comes two days after figures showing exports climbed 26.9 percent in July, accelerating from 17.2 percent in June.