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China Q1 growth slows but analysts unfazed

Figure of 7.4% y-o-y still slightly above estimates, seen as good for reforms

CHINA's economy grew 7.4 per cent year-on-year in the first quarter, the slowest pace of expansion since the third quarter of 2012. However, Q1's growth was still slightly higher than analysts' expectations, which suggests that Beijing may ease up on further measures to stimulate the economy.

Analysts had expected growth of 7.3 per cent in the three months to March, after a string of weaker-than-expected data over the past few weeks pointed to a slowdown throughout the economy.

Nonetheless most do not anticipate a hard landing, arguing that slower growth is not necessarily bad and will allow for structural reforms.

Officials at the statistics bureau attributed the slower first-quarter growth data to weak external demand - affected in part by the severe United States winter - a struggling real estate market and structural changes.

"The growth slowdown is a reflection of China's growth model transformation," National Bureau of Statistics spokesman Sheng Laiyun told reporters. "China can no longer expect double-digit growth."

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Analysts say the economy was also affected by capacity cutbacks in the steel and cement sectors as well as tight monetary conditions.

Many now expect further weakness, with some even suggesting GDP growth could slow to 7.1 per cent by the end of the year.

"Should the current sequential growth rate stay flat at 1.4 per cent quarter-on-quarter then GDP growth should drop to below 7 per cent in Q2. The March data, especially the continued slowdown in fixed asset investment (FAI) growth and falling housing sales, could mean further downward pressure on growth," said Qu Hongbin and Sun Junwei, economists with HSBC.

Data published yesterday shows that industrial output rose 8.8 per cent in March from a year earlier, compared with analyst forecasts of a 9 per cent increase.

Retail sales rose 12.2 per cent in March from a year earlier compared with expectations for a rise of 12.1 per cent, while January-to-March fixed asset investment was up 17.6 per cent from a year earlier versus market expectations of an 18.1 per cent rise.

Premier Li Keqiang, by setting a GDP growth target of "about" 7.5 per cent last March, anticipated the economy, which grew 7.7 per cent in 2013, still had room to slow some more. Faced with rising local government debts and overcapacity, the government is set on steering the economy from investments towards consumption, which means letting go of double-digit growth rates.

Mr Li last week reiterated there would be no major stimulus in the coming months. The government took micro measures to boost investment in targeted sectors of the economy in March, a move interpreted as more of a boost for investors rather than a real injection of funds into the economy.

Should growth rates continue to drop, economists expect more such measures as well as some monetary-policy support such as a reduction in banks' reserve requirement ratios in the second half of the year. The government could also relax housing policies at the local government level to support second-tier property markets.

"Policymakers seem pretty comfortable with the current pace of growth," said Julian Evans-Pritchard, an economist at Capital Economics in Singapore. "I don't think they're going to announce any further significant measures to support growth."

Despite the slower-than- anticipated slowdown, economists said the Chinese economy shows no sign of crashing.

"Overall, this is a good slowdown. Investment decelerated, due to tight credit conditions and capacity consolidation, while consumption was largely stable. It seems that policymakers share this view, based on their recent talk of no big stimulus," said Yao Wei, an economist with Societe Generale.

Markets closed up on the data. Hong Kong shares edged up 0.11 per cent and Shanghai stocks gained 0.17 per cent.

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