China’s economic growth slowed unexpectedly in the first three months of the year, fueling concern about the strength of its shaky recovery.
The world’s second-largest economy grew 7.7 percent over a year earlier, down from the previous quarter’s 7.9 percent, the government reported yesterday. That fell short of many private sector forecasts that growth would accelerate slightly to 8 percent.
A recovery still is under way, but is “really very soft — very slow and gradual,” Societe Generale economist Yao Wei (姚煒) said.
Analysts have warned that China’s recovery from its deepest slump since the 2008 global crisis is weak and is being supported by bank lending and government-led investment, while growth in consumer spending is subdued.
The unexpected growth setback could add to challenges for Chinese Communist Party leaders who took power over the past six months. They are trying to avoid job losses, while they pursue more self-sustaining growth based on domestic consumption instead of exports and investment.
The latest quarterly growth was above Beijing’s official target of 7.5 percent for the year. That is well above forecasts in the low single digits for Western economies and Japan, but far from China’s blistering growth of the past decade.
Recent economic data in China has given mixed signals, raising questions about whether a full-fledged recovery was gaining traction.
Inflation fell last month, indicating consumer demand might not be as strong as Beijing hoped. Import growth accelerated, suggesting companies and consumers were buying more, but some analysts said those figures might be distorted and unreliable.
Also last month, growth in factory output weakened to 8.9 percent, down 1 percentage point from the first two months of the year, the National Bureau of Statistics said.
That was the lowest growth since August last year, when fears of an abrupt “hard landing” of plunging growth were strong. Beijing responded by boosting lending and government spending.
Chinese leaders are unlikely to repeat that strategy after a 60 percent surge in credit in the first quarter produced a lackluster response, IHS Global Insight analysts Ren Xianfang (任現芳) and Alistair Thornton said in a report.
“We have lost confidence in a robust recovery,” they said.
Forecasters who expected growth to accelerate might have been misled by inaccurate trade data due to companies falsely reporting higher exports as a way to evade capital controls and bring money into China, Moody’s Analytics economist Alaistair Chan (陳志雄) said.
Despite the surge in lending, yesterday’s data showed a slowdown in investment growth that is driving the latest recovery.
First-quarter growth in spending on factories, real estate and other fixed assets slowed to 20.9 percent from the 21.1 percent rate for the first two months of the year.
That shows the economy suffers from structural problems, including excess production capacity in some industries that makes more investment unprofitable, Yao said.
“Given all this credit injected into the system, the future should look better,” Yao said. “Nevertheless, the level of efficiency in the economy has declined. The same amount of money will no longer produce the same amount of growth.”
In a positive sign, growth in retail sales edged up to 12.6 percent last month from 12.3 percent for the first two months of the year.
Recent increases in required minimum wages and an improved housing market should help to boost household spending, Moody’s Analytics economist Fred Gibson said in a report.
Still, he cautioned that consumer confidence could be hurt if China’s export weakness persists.