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China?s Economic Growth Probably Slowed to 9.2% in 3rd Quarter

2005-10-19

China, which accounted for a 10th of global economic growth last year, probably expanded at a slower pace in the third quarter as exports cooled and falling prices prompted manufacturers to rein in investment.

Gross domestic product likely rose 9.2 percent from a year earlier, according to the median estimate of 17 economists surveyed by Bloomberg News, after climbing 9.5 percent in the second quarter. That would be the smallest gain in four quarters. The National Bureau of Statistics is due to report third-quarter growth tomorrow at 10 a .m. in Beijing.

China's overseas sales grew at the slowest pace in almost two years in September and a survey of purchasing managers recorded its lowest-ever reading in August, indicating economic activity is easing. Still, rising consumer spending means the world's fastest-growing major economy will probably avoid a sharp slowdown, said Ma Jun, chief China economist at Deutsche Bank AG.

``It will be a gradual slowdown, a soft landing,'' said Ma, who is based in Hong Kong. ``The biggest causes will be softening investment and exports. Consumption will remain stable.''

China's economy, which defied economists' expectations for a slowdown in the past three quarters, is losing steam as rising energy prices leave companies and consumers worldwide with less to spend on Chinese-made goods. Exports grew 25.9 percent last month, the slowest pace since January 2004, the customs bureau reported Oct. 11.

Federal Reserve Chairman Alan Greenspan said yesterday that the record fuel prices that followed Hurricanes Katrina and Rita will be a ``drag'' on global economic expansion from now on by eroding consumers' buying power. Consumer confidence in the U.S., China's biggest export market, last month had its biggest drop in 25 years, a survey published Sept. 30 showed.

Excess Capacity

A monthly survey of purchasing managers in China, sponsored by Hong Kong-based CLSA Asia-Pacific Emerging Markets, showed the nation's manufacturing activity in August was the lowest in the poll's 17-month history. Activity recovered slightly in September, CLSA said Oct. 3.

Excess capacity in industries including autos and steel is pushing prices down and leaving some manufacturers struggling to boost profit, said Jim Walker, CLSA's chief economist.

Consumer prices of household appliances, textiles and clothing have been falling for six years and, according to a Bloomberg survey, inflation probably reached a two-year low of 1.2 percent in September. Last month's changes in consumer prices, producer prices, retail sales, industrial production and fixed-asset investment may be announced during a press briefing tomorrow, shortly after third-quarter GDP has been reported.

Cheaper Cars

Volkswagen AG, the largest overseas carmaker in China, in August cut prices on 18 models made in Shanghai by as much as 14 percent and on Oct. 17 said it will stop expanding in China, citing the need to cut costs as its share of the world's third- largest vehicle market declines. China's steel-making capacity will exceed 500 million tons by 2015, more than a demand forecast of 350 million tons, the government has said.

``Certainly there are problems building in the manufacturing sector with companies having profits squeezed,'' said Walker. ``There's too much capacity and competition around.''

Even with a slight slowdown, China's economy will be expanding at more than double the 4.3 percent pace forecast for global output this year by the International Monetary Fund. China's economic growth has averaged 9.5 percent annually since free-market reforms began in 1978.

Growing Prosperity

Economists expect the Chinese economy to expand 8.8 percent in the fourth quarter and 9.1 percent for the full year, the Bloomberg survey showed.

Growing prosperity among China's 1.3 billion people will bolster spending and partly cushion the impact of cooling exports and investment, said Eric Chan, a Hong Kong-based economist at Bank of East Asia.

Incomes in China's towns and cities, home to two-fifths of the population, have almost doubled in the past five years, allowing more people to buy cars, computers, mobile phones and designer clothes. Retail sales probably rose 12.4 percent in September, a Bloomberg survey showed.

``Every year, tens of millions of people are coming to the stage where they're able to buy consumer durables,'' Kei Kodera, chairman of Sony (China) Ltd., said at a press conference in Beijing on Oct. 17. ``It's like every year, there's one whole European country coming into our market.''

Sony, the maker of PlayStation video game consoles and Vaio laptop computers, boosted sales in China by 60 percent to $3 billion last year, Kodera said.

Railways, Mines

Also helping the economy avoid a sudden slowdown is a shift of investment from those industries hobbled by overcapacity into infrastructure such as railways, coal mines and power stations that are unable to meet demand, said Citigroup Inc. economist Huang Yiping. China's rail operators can only meet half of the demand for their freight services and power shortages affected major cities and 18 of China's 27 provinces this summer.

Investment in coal mining jumped 82 percent in the first eight months of this year, official figures show. The pace of investment in real estate, an industry Premier Wen Jiabao has singled out for lending restrictions, slowed to 22 percent in the first eight months from 27 percent through February.

For the nine months through September, total fixed-asset investment in China likely rose 27.1 percent, down from 27.4 percent through August, a Bloomberg survey showed. Growth in industrial production was probably little changed at 15.9 percent and producer-price inflation likely stayed at 5.3 percent.

China has done quite well in terms of restraining the rather excessive heat in the economy,'' Akira Ariyoshi, the IMF's director of the Asia-Pacific region, said yesterday in an interview in Tokyo.

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