China’s economy slowed in December, capping the weakest quarter of growth since the 2009 global recession, as the Communist leadership struggles to manage a transition to consumer-led expansion.
Industrial production, retail sales and fixed-asset investment all slowed at the end of the year, while gross domestic product rose 6.8 percent in the fourth quarter from a year earlier. Full-year growth of 6.9 percent, the least since 1990, was in line with the government’s target of about 7 percent.
Downward pressure on industry threatens to spread to consumption and services -- an unwelcome prospect for policy makers who must weigh the need for further monetary easing with the risk it would spur more weakness in the yuan and additional capital outflows. Another dilemma: cutting excess capacity that’s weighing on old industrial drivers without triggering a deeper slump.
"Growth is still soft but it’s not collapsing," said Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors Ltd. in Sydney. "Policy stimulus measures are helping but more is needed to help the economy as it transitions from a reliance on manufacturing and investment to services and consumption."
Industrial production posted one of the weakest gains in the past quarter century, increasing 5.9 percent in December from a year earlier. That compared with a 6 percent median estimate of analysts and November’s 6.2 percent.
Retail sales increased 11.1 percent from a year earlier, compared with the 11.3 percent projected by economists. Fixed-asset investment excluding rural areas expanded 10 percent last year, the slowest pace since 2000.
"This may complicate the fragile balance between carrying out reforms and maintaining growth," said Daili Wang, a Singapore-based economist at Roubini Global Economics LLC. "Fourth quarter growth was a mere 1.6 percent quarter-on-quarter, with annualized growth at 6.4 percent, already lower than the 6.5 percent growth target," citing his own calculations based on Tuesday’s data.
China’s top leadership has signaled in recent months it may allow some additional slowness as they tackle delicate tasks such as reducing excess capacity, but nothing that could threaten President Xi Jinping’s goal of at least 6.5 percent growth through 2020. The world’s second-largest economy will slow to 6.5 percent this year and 6.3 percent next year, according to the median of economist estimates.
Xi’s long-term growth goal remains in reach if the government "takes decisive measures to tackle the highly indebted corporate and local government sectors in the coming two years," Liu Li-Gang, head of greater China economics at Australia and New Zealand Banking Group Ltd. in Hong Kong, wrote in a note. "Traditional fiscal and monetary policy will only have secondary impact on the economy by mitigating the pace of the slowdown."
After a roller coaster 2015 that included a surprise yuan devaluation, a record plunge in foreign-exchange reserves, and an equity rout that at one stage wiped out $5 trillion in value, stocks have plunged anew in 2016.
The Australian dollar, which typically fluctuates in reaction to signs from China, Australia’s biggest export destination, fell in the 30 minutes after the GDP release. The Shanghai Composite Index was 1.6 percent higher as of 12:30 p.m. local time, paring this year’s loss to 16 percent. Hong Kong shares also advanced.
China’s economy is growing at two speeds, with old rust-belt industries from steel to coal and cement in decline while consumption, services and technology do better. Services accounted for 50.5 percent of output last year.
The policy response to last year’s slowdown included accelerated monetary easing with six interest-rate cuts since late 2014 and increased fiscal spending. Through the turbulence, the central bank forged ahead with interest-rate liberalization by removing a cap on deposit rates and won the International Monetary Fund’s approval for the yuan to enter its Special Drawing Rights basket of reserve currencies.
This year, attention is likely to turn more to a new focus on supply-side reforms such as slashing excess industrial capacity and labor in state enterprises, cutting taxes and boosting productivity.
"China’s monetary policy should remain extremely accommodative," said Zhou Hao, an economist at Commerzbank AG in Singapore. "While headline growth looks fine, the breakdown of the figures points to overall weakness in the economy. More importantly, recent market turmoil warns many of the weakness of China’s economy and its financial system."