China's fourth-quarter GDP growth dented by services, agriculture despite construction rebound

China's fourth-quarter GDP growth dented by services, agriculture despite construction rebound

China's economy expanded at the slowest pace since the global financial crisis, as a domestic financial clean-up, weakening global demand and trade conflict with the USA all dampened momentum.

Fourth-quarter gross domestic product (GDP) grew at the slowest pace since the global financial crisis, easing to 6.4 percent year-on-year, as expected, from 6.5 percent in the third quarter, the National Bureau of Statistics said January 21. Which means the Federal Reserve is likely on hold, for now.

In a comment to the Financial Times earlier this month, Fred Hu, the former Greater China chairman for Goldman Sachs, said: "Domestic sentiment is definitely very bad, perhaps even worse than during the 2008 global financial crisis. Beijing's preference has been to avoid repeating previous massive stimulus support, but they may be forced into more aggressive action if momentum continues to wane".

Growing signs of weakness in China-which has generated almost a third of global growth in recent years-are fueling anxiety about risks to the world economy and are weighing on profits for firms ranging from Apple to big carmakers.

President Trump has let China know that he is ready to conclude a trade deal that addresses US concerns and just as prepared to continue levying tariffs on Chinese exports to the United States if such an agreement can not be reached. At the same time, the country's GDP growth slowed throughout the year from 6.8 percent year-on-year in the first quarter to 6.4 percent in the fourth quarter.

Services grew 7.4 percent from a year earlier, slowing from 7.9 percent in the third quarter, while growth in agriculture slowed to 3.5 percent from 3.6 percent, the National Bureau of Statistics (NBS) said.

Interestingly, latest data also revealed that the government's efforts to boost domestic consumption seems to be working. Investment in infrastructure continued its pickup from a nadir reached in September.

Growth in investment, retail spending and factory activity all declined, though analysts pointed to a flicker of improvement in manufacturing in December. Sales of household electronics, furniture, clothing and food all accelerated.

The reading was lower than the 6.8-percent growth registered in 2017.

China adopted the universal second-child policy at the beginning of 2016, allowing all couples to have two children, to counter problems such as ageing and dwindling workforce.

With President Xi Jinping's top economic aide Liu He heading to the USA this month, the challenging economic background adds pressure to reach a deal on trade. Chinese three-month yields are now 11 basis points below US yields, a sharp turn from being 250 points higher early in 2018.

China had 222 million people aged 60 years or older as of 2015, according to Xinhua News Agency.

If the slowdown deepens, authorities may resort to more aggressive easing such as relaxing property purchasing curbs in the biggest cities, economists have speculated.

"Those who have been reliant in the past on shadow banking need to find credit from other, more traditional channels, and that part of the transmission mechanism is a challenge that needs to be faced through 2019", said Mann.

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