By Bloomberg News
Jan 20, 2015 – China’s stimulus efforts began kicking in late last year, boosting industrial production and retail sales, and helping full-year economic growth come close to the government’s target. The yuan and local stocks rose.
Gross domestic product rose 7.3 percent in the three months through December from a year earlier, compared with the median estimate of 7.2 percent in a Bloomberg News survey. GDP expanded 7.4 percent in 2014, the slowest pace since 1990 and in line with the government’s target of about 7.5 percent.
A soft landing for China would help a global economy contending with weakness that spurred the International Monetary Fund’s steepest cut to its world growth outlook in three years. China’s central bank cut interest rates for the first time in two years in November and has added liquidity in targeted steps to buoy demand.
“The economy’s performance in 2014 stands out against the widespread hard-landing fears that prevailed early last year,” said Tim Condon, head of Asia research at ING Groep NV in Singapore. “That the authorities were able to sustain close-to-target growth and increase the tempo of economic reforms –- shadow banking, local government finances -– and sustain the property-cooling measures demonstrates the effectiveness of the targeted measures.”
Market Relief
China one-year interest rate swap advanced 2 basis points to 3.23 percent. The yuan advanced, and the Shanghai Composite Index climbed 1.6 percent as of 11:26 a.m. local time.
“Markets should breathe a sigh of relief as the economy enters 2015 in a better shape than had been expected,” said Dariusz Kowalczyk, an analyst at Credit Agricole CIB in Hong Kong. “The data lowers the need for further stimulus, but there remains some room for easing as risks are skewed to the downside.”
Industrial production rose 7.9 percent in December from a year earlier, compared with the 7.4 percent median forecasts of economists surveyed by Bloomberg, and faster than the initial estimate of 7.2 percent for November. Retail sales increased 11.9 percent from a year earlier, compared with the 11.7 percent seen by economists.
Investment Spending
Fixed-asset investment excluding rural areas expanded 15.7 percent last year, meeting the median estimate of economists surveyed by Bloomberg News. Economists’ estimates for GDP growth last quarter ranged from 6.9 percent to 7.6 percent.
Quarter-on-quarter, China’s performance was less robust, slowing to 1.5 percent growth in the three months through December from 1.9 percent in the third quarter.
“Growth momentum eased in the fourth quarter from the previous three months due to property-related weakness,” said Wang Tao, chief China economist at UBS Group AG in Hong Kong. “Property starts deepened their decline, which also dragged down heavy industry and related investment. Property will continue to drag down growth this year.”
Containing Risk
More infrastructure spending, a bigger fiscal deficit, and easier monetary policy will help contain risk and reduce financing costs, Tao said.
A recovering U.S. economy and demand from emerging Asian nations has helped underpin China’s expansion, as exports climbed last year.
Consumption contributed to 51.2 percent of the GDP growth last year, up 3 percentage points from a year earlier. Services made up 48.2 percent of the economy, up 1.3 percentage points.
The world economy will grow 3.5 percent in 2015, down from a 3.8 percent pace projected in October, the IMF said separately in its quarterly global outlook. It upgraded its forecast for the U.S. to 3.6 percent growth in 2015, up from 3.1 percent in October, and lowered China’s to 6.8 percent, down 0.3 percentage point.
Policy makers in China will probably “put greater weight on reducing vulnerabilities from recent rapid credit and investment growth and hence the forecast assumes less of a policy response to the underlying moderation,” the fund said.
“The economy is motoring along just fine, not booming by Chinese standards but certainly not collapsing as many outside China seem to see,” said Shane Oliver, head of investment strategy at AMP Capital Investors Ltd. in Sydney. “Policy support appears to have helped stabilize growth just above 7 percent.”-BLOOMBERG
