Pressure grows for China stimulus

Pressure grows for China stimulus

Pressure is mounting on Chinese leaders to unleash more stimulus measures after news yesterday that the economy grew last year at the slowest pace in a quarter of a century. Expansion came in at 6.9 per cent last year, slightly below the official target of about 7 per cent but in line with economist forecasts.

The benchmark Shanghai Composite Index shot up 3.2 per cent on the back of expectations of more economic stimulus.

Industrial production, retail sales and fixed-asset investment all slowed at the end of the year with fourth-quarter growth slackening to 6.8 per cent, the National Bureau of Statistics (NBS) said yesterday, the softest reading since the global financial crisis in March 2009.

Global investors remain nervous over the health of China's US$10 trillion (S$14.4 trillion) economy amid renewed turmoil in the country's stock and currency markets. There are growing concerns over whether Beijing can overhaul its export- and investment-led economy to one driven more by domestic consumption.

After being a key driver of global growth in recent years, China is now mired in a prolonged and painful slowdown amid a property slump and a huge pile of bad debts.

"The situation in 2016 will be more or less the same as in 2015, and China's economic growth will still face a complicated and volatile international situation," NBS chief Wang Baoan said at a press conference in Beijing yesterday.

But he played down fears of the looming economic meltdown some investors fear. While some sectors will see destocking and overcapacity reduction, new sectors such as e-commerce and renewable energy cars are still growing fast, he noted.

China's services sector accounted for 50.5 per cent of growth last year, the first time it accounted for more than half the economy. "We think in 2016, China's economic growth will remain stable. We are confident in that," Mr Wang added.

Capital Economics China economist Julian Evans-Pritchard agreed that concerns about China's outlook are overdone: "With the tailwinds from recent policy stimulus still gathering, we expect the data to gradually turn more upbeat over the next few months... The recent market volatility has been driven more by sentiment than by economic fundamentals."

Chinese leaders are widely expected to lower the growth target this year to 6.5 per cent - a rate President Xi Jinping has said will be sufficient for China's needs - and boost growth by ramping up fiscal spending and cutting interest rates.

Premier Li Keqiang said last month the government would "take a knife" to loss-making "zombie firms" to reduce overcapacity. Other priorities include reducing a glut of unsold homes, deleveraging balance sheets, lowering costs for businesses and supporting new technology.

But with recent perceived policy missteps severely denting investor confidence, experts say Chinese officials will need to work at improving their communication with the markets. Confusion over China's currency policy, for instance, contributed to a series of sharp sell-offs in the stock market recently. Yesterday, the bank helped calm nerves by keeping the yuan largely steady.

"For policy easing to have the desired impact, policy response should be proactive, coordinated and better communicated in order to reverse the slide in private sector confidence and stabilise financial market expectations," noted Ms Julia Wang, HSBC's Greater China economist.

This article was first published on Jan 20, 2016.
Get a copy of The Straits Times or go to for more stories.

More about

Purchase this article for republication.



Your daily good stuff - AsiaOne stories delivered straight to your inbox
By signing up, you agree to our Privacy policy and Terms and Conditions.