China to skid, then rebound in Q3
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Policy easing will take time to kick in, cushion weak global demand: economists
By VEY WONG
19 January 2012
China’s economy is likely to bottom out in the next few months before regaining momentum in the third quarter, economists said after the National Bureau of Statistics unveiled on Tuesday the country's lowest expansion in nine quarters.
They expect sequential growth in the gross domestic product (GDP) to hit a trough of below 2 per cent in the first half of this year as government efforts to ease policy since last October will take time to kick in and cushion the impact of a weak external environment and a real estate slump.
'Quarter-on-quarter growth could hit a bottom of 1.8 per cent in the quarter through March and stay flat before a possible rebound in the third quarter amid a sluggish global economy that affects external trades,' Liao Qun, chief economist at Citic Bank International Ltd, a unit of China Citic Bank Corp Ltd, said.
'The tightening measures imposed in the first three quarters last year will continue to take its toll on growth, especially in investment and the real estate sector in the first half this year,' Mr Liao said. 'It will possibly drag the full-year growth this year to 8.7 per cent with single-quarter GDP rising as low as 8.5 per cent.'
Last year, the nation's GDP rose 8.9 per cent year on year in the fourth quarter, taking the full-year clip to match the 2009 level of 9.2 per cent and far below the 10.4 per cent in 2010, data from the statistics bureau showed on Tuesday.
The fourth-quarter reading surprised the market on the upside, given an 8.6 per cent median forecast in a poll by Hong Kong Economic Journal's EJ Insight, though it still marked the lowest since the third quarter of 2009.
'We do see strong headwinds, especially the drag from a growth slowdown in developers' FAI (fixed asset investment) and exports,' said Bank of America Merrill Lynch's China economist Lu Ting.
The People's Bank of China last year raised three times the one-year benchmark lending and deposit rates by 25 basis points each to 6.56 per cent and 3.5 per cent, respectively, and hiked lenders' reserve requirement ratio six times to a record 21.5 per cent before announcing a 50 basis point cut effective December.
Tax cuts and cancellation of hundreds of types of administrative fees were also introduced over the last quarter to help ease the financial burden of companies.
The persistent monetary tightening policy and austerity measures such as property purchase curbs were blamed for having dampened investment sentiment and hindered the country's growth to a certain extent.
However, with policy easing started in mid-October last year amid Premier Wen Jiabao's 'fine-tuning' pledges, Mr Lu said he expects China's fiscal policy could be more proactive while monetary policy would be eased from an over-tightening in 2011.
Mr Lu sees the possibility of Beijing allowing a less stringent enforcement of home purchase restrictions in lower-tier cities. Citic Bank International's Mr Liao also expects the government's loosening efforts will kick in and lead to a rebound in the third quarter, sending GDP rising 9 per cent in the second half.
The statistics bureau chief, Ma Jiantang, said woes in the property market and debts from local government financing vehicles will not cause a major threat to the economy, but warned against long-term inflation pressure.
Most of the 10.7 trillion yuan (S$2.2 trillion) of local government liabilities were actually incurred before 2008 with sufficient collaterals and good repayment conditions, he said. -- EJ Insight