China’s battle with inflation dents growth

By Scott Reid
Published on Wednesday 18 January 2012 04:48

China’s economy expanded at its weakest pace in two years during the closing months of 2011 as government measures to cool inflation hit growth.

The world’s second-biggest economy grew by 8.9 per cent in the three months to the end of December, compared with a year earlier, official figures yesterday showed. That is down from 9.1 per cent on the previous quarter but slightly above expectations.

Growth for the whole of 2011 fell to 9.2 per cent, a pace last seen in 2009 during the global financial crisis. In contrast, analysts believe that the UK economy barely grew at all last year and may now have tipped back into recession.

Housing investment in China dropped sharply in December, and many property developers have warned that 2012 looks grim.

A booming housing market has helped drive the Asian nation’s explosive growth, but Beijing has tried to cool prices in the hope of avoiding a devastating bubble and bust.

A modest housing market slowdown would be a welcome development, but a crash would be catastrophic, both for China and its global trading partners.

Some analysts think China’s Q1 growth will be below the 8 per cent threshold seen as the minimum for assuring sufficient job creation.

Arjuna Mahendran, chief Asia strategist at HSBC Private Bank, said: “You are going to see an even sharper slowdown in the first quarter because of the effect of monetary tightening.”

SCOTT REID

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