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China’s lumbering economy grew 7% in first quarter

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It's getting harder to sustain.Photograph by Getty Images

Again, China’s latest GDP quarterly growth illustrates an economy slowing way down and showing no signs of stopping.

First quarter 7% GDP growth met the government’s target for the year, but if you consider that sequential quarter-to-quarter growth slowed way down to a 5.2% annual rate, the yearly target will be tough to reach without more stimulus, notes HSBC’s chief China economist Qu Hongbin. The first quarter growth was the lowest since the beginning of 2009, when China was climbing out of the global financial crisis.

Here's hoping less is more
Here’s hoping less is more Source: ieconomics.com
Source: ieconomics.com

Economists were surprised Wednesday by March economic figures that were disappointing across the board: industrial production, exports, fixed asset investment and retail sales were all worse.

“Looking ahead, more stimulus measures are definitely needed,” Chen Yuyu, professor of applied economics at Beijing’s Guanghua School of Management, wrote on Wednesday. Almost all economists who follow the world’s second largest economy said something similar.

Three forces are driving China’s downturn—a large real estate decline; a decline in exports; and heavy industry slowing to a crawl— and none appears to have bottomed yet.

 

House prices are showing no sign of stabilizing – even according to official data. Source: tradingeconomics.com, National Bureau of Statistics
Source: tradingeconomics.com, National Bureau of Statistics

 

China’s central bank has already cut benchmark interest rates to 2009 levels, but they can cut further. Chinese Premier Li Keqiang promised to use more fiscal measures to sustain economic growth, leading more government investment projects and services, he said in a speech yesterday.

“Economic data in the first quarter are not pretty,” Li said, according to the English-language state-owned China Daily yesterday.

Li mentioned that one of his favorite economic indicators, rail freight, fell by 9% in the first quarter. The indicator is part of the “Li Keqiang Index,” which famously dates back to a 2007 meeting between the U.S. Ambassdor to China and the then-provincial Communist Party secretary when Li said the official GDP statistics coming out of China were “man-made” and unreliable, according to a diplomatic cable Wikileaks released years later.

Li said he focused on three economic indicators in his province instead: electricity consumed, loans, and the volume of railway cargo. As official GDP growth has hovered around 7% in the past year, the Li Keqiang index started crashing in mid-2014, from about 8% growth to 2.5% growth.

But unemployment is under control. At least, the statistics are.Source: tradingeconomics.com
Source: tradingeconomics.com

 

Between the ho-hum headline GDP release Wednesday and grim economic figures across the board for March, the conversation today in China is less about the intricacies of the slowdown and more about how to prevent it from spiraling out of control.

But at least unemployment is under control. Or rather, the statistics are. Source: tradingeconomics.com