beyondbrics

So much for a hard landing – in fact, so much for any landing at all. China’s economy grew 8.9 per cent year on year in the fourth quarter, comfortably faster than market expectations, and just a whisker below the third quarter’s 9.1 per cent pace.

But the figure is, of course, for the entire quarter. The finer-grained picture from a monthly breakdown shows that the Chinese economy is indeed on the descent.

This was particularly the case for investment, which is hugely important, accounting for nearly half of China’s gross domestic product.

Investment in fixed assets rose 23.8 per cent last year, down just a touch from 24.5 per cent in 2010 – little to worry about there. Yet the slowdown in recent months has been marked. The National Bureau of Statistics does not publish a month-alone figure, but Wei Yao, an economist at Société Générale, calculated that investment growth went from 25 per cent year on year in October to 21.2 per cent in November and 18.5 per cent in December.

Unsurprisingly, the deceleration has been particularly sharp in the property sector, which the government has been trying to smother with purchase restrictions in order to deflate a housing bubble. Investment in property fell to 12.3 per cent year on year in December from 20.1 per cent in November. Other signs of stress included a nearly 25 per cent drop in new housing starts in December and a 26 per cent jump over the full year in unsold property.

“Going forward, investment is expected to become a main drag on growth,” said Shuang Ding of Citi.

With investment weakening so much, it was consumption that carried the extra weight in December. Retail sales rose 18.1 per cent year on year last month, up from 17.3 per cent in November. But as Wei Yao noted, this could be somewhat misleading, because an expiry of subsidies at the start of 2012 probably led to a last-minute shopping binge in December.

So the key policy question in China now is which set of data will get the leadership’s attention: the very rosy growth figure for the quarter as a whole or the more worrying monthly trajectory?

Officials clearly are aware of the slowdown – hence the cut in banks’ required reserves at the end of November. However, the upside surprise in the fourth quarter could give more clout to those in Beijing arguing that the government should desist from substantial easing or stimulus.

Late last year, Premier Wen Jiabao said that policy would become more “pre-emptive” – but “wait-and-see” might be more like it.

“Within the decicion-making circle, the voice against ‘too pre-emptive’ is gaining momentum,” said Dong Tao of Credit Suisse. “Unless the economy shows signs of a hard landing or the financial sector shows signs of rising systemic risk, Beijing is likely to hold back.”

Related reading:
China fourth-quarter GDP grows 8.9%, FT
Shares rise after China growth data, FT
China to take steps to boost consumption, FT
Chinese property: game over? beyondbrics