Published October 17, 2012
BEIJING – China's economy likely slowed for a seventh straight quarter in July-September, missing the government's target for the first time since the depths of the global financial crisis, and data on Thursday could signal still worse to come.
"The risks are stacked on the downside," said Jeremy Stevens, China economist at Standard Bank in Beijing. "Most macro figures, like industrial production, investment, retail sales and so on, have averaged a lower growth rate in the third quarter than in the second, suggesting additional momentum loss over the quarter."
With all those data points Stevens cited scheduled for release alongside GDP numbers at 0200 GMT, investors are braced for a burst of bad news - despite a surprise uptick in September trade and money supply data released at the weekend.
Economists polled by Reuters expect September's economic activity indicators to be flat on August's growth rate, leading to overall third-quarter GDP growth of 7.4 percent - the first miss of the official target since the first quarter of 2009's 6.5 percent.
Fixed-asset investment is expected to have risen 20.2 percent in January-September from a year earlier, unchanged from the first 8 months, but down from around 25 percent seen for most of last year.
Consumption is also expected to hold steady, with retail sales in September forecast to have expanded 13.2 percent from a year earlier. Growth in factory output is estimated at 9.0 percent, little changed from August's 8.9 percent.
Data will also detail real estate investment in the first 9 months. It was worth 13.7 percent of GDP in the first half of the year and is a crucial barometer of domestic economic activity, directly affecting 40 business sectors.
While GDP growth at 7.4 percent would be cause for joy in recession-stalked developed economies, it is little comfort to firms and funds that have invested in China assuming expansion of more than 9 percent - GDP grew 9.2 percent in 2011 and has averaged an annual rate near 10 percent for three decades - only to see it tumble towards 7 percent in a matter of months.
The government targets growth of 7.5 percent for the full year - reduced in 2012 from the previous 8 percent target - and the consensus forecast of economists polled by Reuters is that it will deliver on it, with an expansion of 7.7 percent.
Indeed, Premier Wen Jiabao was quoted by local media as saying on Wednesday that the economic situation in the third quarter was relatively good, and the government was confident of achieving its 7.5 percent target. He was quoted by state news agency Xinhua as saying the world's second-biggest economy was stabilizing, and Beijing would not relax restrictions in the housing market aimed at cooling home prices.
But the steady slide in growth has confounded forecasters repeatedly this year, with the initial consensus call for growth to bottom in the first quarter being persistently beaten back to its present position of a trough in the third quarter followed by a mild uptick in the fourth quarter.
Some analysts cite electricity usage growth running at roughly half the average rate of the last five years as a manifest sign of economic malaise. Data on Wednesday showed power consumption growth slipped to an 8-month low, contrasting sharply with double-digit growth just a year ago.
Tim Condon, head of Asia Pacific research at ING in Singapore, reckons China's GDP growth will languish at 7.1 percent in both the third and fourth quarters, absent a jump in government stimulus measures. He doesn't see such action ahead of a once-a-decade leadership change at the top of the ruling Communist Party, set to begin next month, leaving insufficient time for a meaningful bounce in what's left of 2012.
Others disagree. They say there is clear evidence that the financial system's liquidity taps have been opened wide and that fine-tuning policies - Beijing's mantra for a year now - are gaining traction.
The fine tuning includes two interest rate cuts, three cuts to the proportion of deposits banks must keep as reserves - freeing an estimated 1.2 trillion yuan ($190 billion) for lending - and approvals in the last month for infrastructure projects worth about $157 billion, although Beijing has not said explicitly where the money to fund them is coming from.
TRADE TICKS HIGHER
China's Commerce Minister, Chen Deming, sounded a rare upbeat note on exports in remarks published on Wednesday, saying that government initiatives to help stabilize conditions for exporters were beginning to pay off.
Until recently, Commerce Ministry officials had assessed the situation as "grim" and that the government's 10 percent target for trade growth in 2012 would be missed.
Trade is vital to the economy - exports generated 31 percent of GDP in 2011 according to World Bank data and support an estimated 200 million Chinese jobs - but even September's 9.9 percent year-on-year export growth surge is unlikely to compensate for sub-par prior performance.
Trade growth in the first nine months of 2012 was just 6.2 percent, far behind the target.
The uncertainty for exports has created a vicious cycle of destocking at companies, revealed in falling inventory levels according to surveys of purchasing managers.
That in turn drags on industrial output, dampens factory gate prices, squeezes margins, dents profits and makes banks wary about lending - even China's state-directed lenders.
But Ting Lu, chief China economist at Bank of America/Merrill Lynch in Hong Kong, believes markets are overly worried about the risk of a hard landing and says financing conditions have been eased significantly and system-wide credit is growing even more rapidly than official bank lending data suggest.
Credit grew by 19.6 percent year-on-year in September by Lu's calculations, up from 18.8 percent in August, well ahead of the 16.4 percent official number for bank lending growth and 2.1 percentage points higher than it was in October 2011.
That's enough to stop economic growth falling further beyond the third-quarter 7.4 percent bottom Lu anticipates, but he cautions that it will not engender a sharp bounce in activity, forecasting full-year growth of just 7.6 percent for this year and next.
"It might take another couple of quarters for growth to truly bottom out," Lu wrote in a note to clients. "This cycle might be more U-shaped than V-shaped."
(Editing by Alex Richardson and Ian Geoghegan)