Chinese economic growth fell to 6.9 per cent in 2015, its lowest level in 25 years, matching expectations but adding to a picture of slowdown in the world’s second biggest economy on the back of slower investment, high levels of debt, weaker exports and a sluggish property market.
There was some relief when data showed that the economy expanded by 6.9 per cent, just shy of government forecasts for growth of seven per cent, down from 7.3 per cent in 2014.
The message coming from the Chinese government is that the economy is in the process of transformation, which is why data for older traditional manufacturing industries are showing a decline, which services now accounts for half the economy and are expanding rapidly.
It's the latest sign of an adjustment to what Beijing is calling the "New Normal". After years of double-expansion, China is now getting used to more moderate growth and the pressure for Xi Jinping's government to implement reforms is growing.
In an editorial, the state news agency Xinhua said that economic numbers might continue to look undesirable in years to come, especially for sectors burdened with overcapacity.
“There will be a tough battle ahead to deepen reforms. The Chinese leadership, however, is determined to get real with reforms despite short-term pains,” it said.
“Firms in industries facing overcapacity will merger or go bankrupt. The bloated state-owned enterprises will be streamlined. The government will be committed to pushing forward structural reforms, especially on the supply side, to reduce overcapacity, destock, deleverage, lower cost and shore up weak growth areas.
“Of course there will be no miraculous V-shape economic recovery, but after painstaking structural reforms, the world can expect a more sustainable and vibrant Chinese economy,” Xinhua said.
Julian Evans-Pritchard, China economist at Capital Economics, warned against taking official GDP figures at face value but believed growth does appear to have been broadly stable last quarter.
“Meanwhile, the December data, although mixed, don’t suggest that China is now entering a deeper economic crisis,” he said. “On the contrary, with the tailwinds from recent policy stimulus still gathering we expect the data to gradually turn more upbeat over the next few months.”
HSBC said in a research note it expects growth momentum would likely continue to slow in the first quarter of 2016, and the bank expects 25 basis points policy rate cut, 100 basis points reserve ratio cut and a bigger fiscal deficit at three per cent of GDP to be announced in the National People's Congress in March.
“Both monetary and fiscal easing measures are needed to help support demand and anchor expectations,” HSBC said.
“But policy easing should be more pro-active, co-ordinated and clearly communicated in order to have the desired impact on economic activities and market confidence,” HSBC said.
