China growth slid to 25-year low in 2015, says survey

Beijing, January 17

China recorded its lowest growth in a quarter of a century in 2015, an AFP survey has forecast, projecting a further slowdown in the world’s second-largest economy this year.

Official gross domestic product statistics for 2015 will be announced on Tuesday, and the median prediction in the poll of 18 economists put expansion at 6.9 per cent — down from 7.3 per cent the year before.

The Asian giant is a key driver of the world economy, affecting businesses and employment across the planet, and worries about its health have roiled global markets in recent weeks and months.

The figure would be the weakest growth in the People’s Republic since the 3.8 per cent of 1990, a year after the bloody Tiananmen Square crackdown rocked the country and isolated it internationally.

Growth will slow further this year, the survey forecast, with the median projection for 2016 coming in at 6.7 per cent.

One bank, Nomura, forecast a precipitous drop to 5.8 per cent.

“The real economy will continue the downturn because of destocking, reduction of overcapacity and deleveraging,” its economist Zhao Yang said, citing in particular declining investment in property, a key sector. “I don’t think economic growth will bottom out in 2016,” he added. “It will be under rather big downward pressure for the next two to three years.”

Chinese authorities struggled to keep control of a bucking stock market last year, weakening investor confidence in

policymakers’ ability to implement reform and manage the transition to a more market-driven economy.

An oversupply of empty housing in second-tier cities and stubborn overcapacity in industries dominated by legacy state-owned enterprises continue to weigh on growth.

The expansion slowdown has stalled Beijing’s efforts to move the country’s economic model away from reliance on exports and infrastructure investment towards consumer spending.

Even so some analysts believe that markets have overreacted to negative factors and underestimated the fundamental resilience of China, whose official growth rates still far exceed those of the developed world.

In the AFP survey, economists forecast 2015 fourth quarter growth of 6.8 per cent, down from 6.9 per cent in the previous three months — when US growth stood at two per cent.

“In spite of the strong global market response to the rout on China’s equity market, we do not expect the equity slump to have a major impact on China’s real economy,” Louis Kuijs, an economist with Oxford Economics in Hong Kong, told AFP. “Indeed, we think that global markets have overreacted.”

The company expects growth to slow to 6.3 per cent this year, again pointing to the property sector, but added: “Those pressures remain cushioned by robust consumption.”

The 2015 forecast in the AFP poll was close to official growth target of ‘around seven per cent’ for the year but questions have repeatedly been raised about the accuracy of official Chinese economic statistics, which critics say can be subject to political manipulation.

Even Premier Li Keqiang reportedly once expressed doubts, telling the then-US ambassador in 2007 that some Chinese data was ‘man-made’ and thus unreliable, and pointing to power consumption and rail cargo volume as better indicators of the true health of the economy.

But now that the services sector has grown to 51 per cent of GDP, economists are divided over what alternative measurements to use.

Two months ago, state media proposed a ‘new Keqiang index’ focused on measurements of employment, income, and energy consumption per unit of GDP.

December export figures that came in ahead of expectations this week prompted doubts about whether over-invoicing, which can be used to hide capital flight, was responsible.

The world’s biggest trader in goods saw its two-way business fall eight per cent year-on-year to $3.96 trillion, the figures showed, far below the government’s target of six per cent annual growth.

At a meeting of G20 officials this week, China’s top diplomat Yang Jiechi warned that ‘it is not possible to completely discard the possibility that an economic crisis could once again take place, and the problem should not be neglected’.

Unexpected moves in the yuan exchange rate — after a surprise devaluation in August — have disturbed the investors

in recent weeks, who worry that the real picture is worse than portrayed.