China posts slowest growth since global crisis, more stimulus expected

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BEIJING (Oct 21): China's economic growth slowed in the third quarter to its weakest since the 2008/09 global financial crisis as a slumping property market dragged on manufacturing and investment, adding to concerns about flagging global growth.

The world's second-largest economy grew 7.3 percent between July and September from a year earlier, slightly above the 7.2 percent forecast by analysts but slowing from 7.5 percent in the second quarter.

The slowdown reinforced expectations that Beijing will need to unveil more stimulus measures to avert a sharper slowdown, though analysts appeared divided over whether policymakers would continue to roll out more modest support steps or take more aggressive action such as cutting interest rates.

The weaker gross domestic product figure fed speculation that China will miss its official full-year growth target of 7.5 percent, even though Premier Li Keqiang has stated repeatedly that the country can tolerate slightly lower growth.

Li has instead indicated that the leadership's bottom line is maintaining robust employment levels to ward off social unrest, a policy priority for China's stability-obsessed Communist government.

"GDP is higher than we expected. We guess it may be due to better growth in the services sector," said Wang Tao, an analyst at UBS in Hong Kong.

"But the weakest part of China's economy is still the property sector. The government has relaxed some controls recently and property sales may pick up in the fourth quarter. However, we may not see improvement in sectors like heavy industry and we expect the economy to continue to slow down."

UBS expects the central bank to cut interest rates by the end of the year, though some other economists believe Beijing is unlikely to take bolder action unless conditions threaten to sharply deteriorate.

On a quarter-on-quarter basis, growth eased to 1.9 percent versus expectations of 1.8 percent and down from 2.0 percent in the second quarter.

A raft of lacklustre and at times alarming economic data presaged slowing third-quarter growth in China, with the growing drag from the property market blunting the impact of stimulus measures rolled out earlier in the year.

PROPERTY SLOWDOWN MAIN RISK TO ECONOMY

Other data released alongside the GDP report on Tuesday showed factory output rose 8.0 percent in September from a year earlier, beating expectations for a 7.5 percent increase and up from August's six-year low of 6.9 percent.

But that appeared to be the lone bright spot in the data.

Fixed asset investment, a key driver of the Chinese economy, was weaker than expected, as were retail sales, and the real estate sector continued to cool.

Fixed asset investment climbed 16.1 percent in the first nine months compared with the same period a year earlier, below forecasts for a 16.3 percent rise and cooling from 16.5 percent in the first eight months of the year.

Retail sales rose 11.6 percent in September from a year earlier, below analysts' predictions of 11.8 percent and down from the previous month's 11.9 percent.

With house price declines spreading to a record number of cities and new construction tumbling, the government took aim at reversing the housing slowdown in September, cutting mortgage rates for some home buyers for the first time since the global financial crisis.

But it's too soon to say whether those measures will turn the market and the economy around. Developers have huge inventories of unsold homes and increasingly risk-averse banks are wary about financing new mortgages which would only increase their exposure to the weakening sector.

Property data for September also released Tuesday showed that the slowdown deepened with real estate investment rising 12.5 percent in the first nine months compared a year ago, down from an annual rise of 13.2 percent in the first eight months.

Revenue from property sales dropped 8.9 percent.

While leaders have offered a steady stream of aid to more vulnerable sectors of the economy, they have ruled out massive stimulus as China is still struggling with a mountain of local government debt, the hangover from 4 trillion yuan (US$650 billion) in spending rolled out in 2008/09 to cushion the impact of the global crisis.

However, authorities may resort to bolder and broader measures such as interest rate cuts if quarterly growth threatens to slip below 7 percent, government economists at top think tanks involved in policy discussions said. (1 US dollar = 6.1233 Chinese yuan)