World Economy

China GDP Slowest in 25 Years

China GDP Slowest in 25 YearsChina GDP Slowest in 25 Years

China's economy grew at an annual pace of 6.9% in 2015, the slowest rate in a quarter of a century, leading to rising concerns of a hard landing in the world's second biggest economy.

In an update to its World Economic Outlook, the International Monetary Fund Tuesday maintained its previous China growth forecasts of 6.3% in 2016 and 6% in 2017, which nonetheless represent sharp slowdowns from 6.9% in 2015 and 7.3% in 2014, news outlets reported.

The updated forecasts said a steeper slowing of demand in China remained a risk to global growth and that weaker-than-expected Chinese imports and exports were weighing heavily on other emerging markets and commodity exporters.

Beijing had set an official growth target of "about 7%". Chinese Premier Li Keqiang has said weaker growth would be acceptable as long as enough new jobs were created.

But some observers say its growth is actually much weaker than official data suggests, though Beijing denies numbers are being inflated.

However, Chinese stock markets–the benchmark Shanghai Composite and the CSI300 index of the largest listed companies in Shanghai and Shenzhen–gained nearly 3% on hopes of more stimulus policies.

The rally in China markets lifted sentiments across Asian shares, including India, where the Sensex and Nifty indices traded with over 1% gains. Domestic stock markets are on course for their first gain in four sessions; they had closed at a 20-month low Monday.

Gains were led by banking stocks, but commodity stocks also rallied on hopes of fresh economic stimulus in China.

Angus Nicholson, market analyst at IG in Melbourne, said in a note that further cuts in interest rates and reserves that banks have to set aside were already looking "a foregone conclusion" before the data release, and now it was a question of timing.

"That gives investors an excuse to buy stocks, after sharp falls recently," said Linus Yip, strategist at First Shanghai Securities Ltd.

China is decelerating after years of solid growth. The government is trying to shift the growth engine away from manufacturing and debt-fueled investment toward the services sector and consumer spending.

Uncertainty over the outlook for the Chinese economy, a key driver of global growth, has roiled global markets lately. China isn't buying as many commodities as it once did, and the world is awash with oil --  hurting exporters.

The country's currency, the yuan, has fallen against the dollar.

Concerns Rise

The national bureau of statistics’ bulletin showed GDP growth at 6.8% in the three months to December, easing from 6.9% in the previous quarter–the slowest quarterly rate since 2009, when growth slowed to 6.2%.

The slide from the previous quarter was expected, but will add to concerns about the health of the world’s second-biggest economy as it confronts a range of challenges, including weak exports, high debt levels and slowing investment.

China’s industrial output in December rose 5.9% from a year earlier, compared with forecasts for a 6.0% increase.

Meanwhile, policymakers in Beijing have struggled to arrest the slide in China’s fortunes, with some analysts predicting growth of about 6.5% this year even if, as many expect, the authorities unveil fresh spending packages and cut interest rates again.


The lack of surprises did at least offer some respite to stock and currency markets. MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.2% on Tuesday after earlier touching its lowest level since October 2011. Australian shares added 0.8%, while Tokyo’s Nikkei dropped 0.3%. In Shanghai, recent volatility gave way to a 0.2% rise, following a 13-month low on Monday.

The US dollar nudged up 0.2% to 117.55 yen after slipping last week to a four-and-a-half-month low of 116.51.

Cautious Optimism

Analysts were cautiously optimistic about the China’s fortunes following the tumult of the past few weeks.

“I think that at least the biggest fears about the real economy, fears that came to the surface during the stock market rout ... I think those biggest fears were overblown,” said Louis Kuijs, head of Asia economics at Oxford Economics in Hong Kong.

 “We don’t see signs of an abrupt slowdown, or something getting worse than we had expected say six weeks ago.”

Gordon Kwan, a Hong Kong-based analyst at Nomura Holdings, said: “China’s GDP growth is not collapsing, even though the fourth-quarter figures are slightly lower than expectations.”

Kwan said he expected additional government stimulus, but added that the Chinese economy was “in decent shape, despite the recent hype about how it is on the verge of collapse”.

He believed the rest of the world would take positives from Tuesday’s data.