Signs of a nationwide slowdown abound in China, testing the nerve of policymakers… (Nelson Ching, Bloomberg )
BEIJING — China's roaring economy cooled the first three months of this year to its slowest pace of growth in three years because of slackening export demand and a weakened property market.
The country's gross domestic product expanded 8.1% in the first quarter compared with a year earlier, China's National Bureau of Statistics said Friday. That's down from 8.9% growth in the fourth quarter last year and below many analysts' expectations.
The figure could spook investors and prolong fears of a potential hard landing for the world's second-largest economy after years of unsustainably high growth. China's economic expansion has now weakened every quarter since the last three months of 2010.
Economists say the slowdown could spiral out of control depending on how severe the European debt crisis becomes and the results of the central government's two-year campaign to deflate the nation's property bubble.
Signs of a nationwide slowdown abound, testing the nerve of policymakers who must decide whether the economy requires more monetary easing. A higher-than-expected jump in inflation last month only makes their task harder. China spent the last year trying to temper soaring consumer prices.
"Renewed weakness in the euro area or a sharp worsening of the domestic property slowdown are the main downside risks that would force a sharper policy response," said Brian Jackson, a senior strategist at the Royal Bank of Canada.
Unexpectedly high bank lending last month indicates the government is already nervous about the trajectory of economic growth. New credit in March reached a 14-month high of $160 billion. (China's economy depends a great deal on how much its state-controlled banks lend each month because it doesn't have access to the same scope of market-based financing available in more developed countries such as the U.S.)
The surge in new loans could help offset the troubles already being faced by Chinese exporters and real estate developers.
Exports to Europe, the world's biggest buyer of Chinese goods, contracted 3.1% in March. They grew 7.6% year-over-year in the first quarter, compared with 14.3% in the final three months of last year.
"This is the toughest season in the last 30 years," said Alan Wang, head of a footwear trading company in the southern factory town of Shenzhen whose customers are based in France and Spain. "A lot of people cannot survive."
At the same time, import growth slowed to 6.9% year-over-year in the first quarter from 20.6% in the fourth quarter of last year.
The sharp decline reflects weak demand for imported raw materials as Beijing continues to keep the clamps on the nation's property sector.
Restrictions aimed at speculators have pushed some real estate companies to the brink as prices and transactions have declined for months. One developer in the wealthy vacation city of Hangzhou recently filed for bankruptcy, further testing the government's resolve to maintain the tightening measures.
The government "has room to ease the stance towards the property sector once it considers its goal of reining in property prices has been achieved," Louis Kuijs, an economist formerly at the World Bank and now at the Fung Global Institute in Hong Kong, wrote in a research note.
In a quarterly report released Thursday, the World Bank in Washington urged China to loosen reserve requirements for its banks should the country need to stabilize growth.
The lending institution also downgraded its growth forecast for China to 8.2% this year from its January projection of 8.4%. That would mark the slowest pace of expansion in more than a decade.
"China's gradual slowdown is expected to continue into 2012, as consumption growth slows somewhat, investment growth decelerates more pronouncedly and external demand remains weak," said Ardo Hansson, the bank's lead economist in China. "The risks of overheating are moderating, increasing the prospects to achieve a soft landing."
The days of double-digit growth may be gone for good. China's leaders are trying to rebalance the economy away from an unsustainable emphasis on exports and fixed asset investment — a strategy that led to large trade surpluses, the property bubble and soaring municipal debt to pay for things such as new roads and government buildings.
Beijing would like to rely more on domestic consumption to power the economy. But to do that would require painful reforms that target China's entrenched interest groups. Last week, Chinese Premier Wen Jiabao unexpectedly called for a breakup of what he described as a state-banking monopoly.
In March, Wen lowered China's annual growth target to an eight-year low of 7.5%, signaling a greater acceptance of slower growth if it means getting the country on a more sustainable path.