Chinese Economy Expects Slowdown

"Excessive economic growth has been basically brought under control. This data shows that the tightening policies adopted by the central government have been timely and effective," Li Xiaochao, chief spokesman for the National Bureau of Statistics, told a news conference on Thursday.  But the third quarter's annual growth rate was still the second strongest since the fourth quarter of 2003 and Li said the economy was likely to keep up the momentum in the fourth quarter.  Gross domestic product in the first nine months grew 10.7 percent from a year earlier, faster than any other major economy.

Frank Gong, the bank's chief Greater China economist, said strength in exports and private consumption would cushion a continuing slowdown in fixed-asset investment (FAI), which has been the main engine of China's growth.  "On the policy front, policy makers are likely to be comfortable with today's report, seeing growth as continuing to be 'fast' and 'steady,' with the slowdown in FAI in line with the authorities' intentions," Gong said.

With record trade surpluses creating political and monetary headaches, Beijing wants to rebalance growth away from exports.  But with national income still only around $1,700 per head, China has no desire to slam the brakes on an economy that grew 10.2 percent in 2005, 10.1 percent in 2004 and 10.0 percent in 2003.  To try to sustain growth, the central bank has raised interest rates and banks' required reserves twice since April. Ministries have also tightened land-use and pollution criteria to weed out spending on white-elephant projects.  "The macro-control measures have basically achieved their desired results.  Bank credit and money supply growth have gradually eased," said Guo Shuqing, chairman of China Construction Bank.  But Guo said policy-makers still faced an acute challenge to prevent a resurgence in credit and investment as the urgency of Beijing's edicts fade.

Indeed, many economists expect more monetary tightening.  Ben Simpfendorfer with Royal Bank of Scotland in Hong Kong and Li Mingliang with Haitong Securities in Shanghai both said they expected another increase in the proportion of deposits that banks must hold in reserve with the central bank.  Li also disclosed that Qiu Xiaohua, who was abruptly dismissed last Thursday as statistics commissioner, lost his job after anticorruption investigations implicated him in a spreading Shanghai pension fund scandal.  "The central disciplinary office is now conducting an investigation into his involvement," Li said.

Other data showed investment in the first nine months of 2006 in urban areas in housing, factories and other fixed assets expanded 28.2 percent from a year earlier, slowing from growth of 29.1 percent in the January-August period.  Industrial output growth in the year to September rebounded to 16.1 percent after a surprisingly steep drop to a 15.7 percent rate in August.  Retail sales in September grew 13.9 percent from a year earlier, up from 13.8 percent in August.  Inflation edged up a bit but was still in check.  Consumer prices rose 1.5 percent in the year to September.