Signs that pick-up in China activity may be waning

SIGNS that a recent pick-up in activity in China may already be waning emerged yesterday despite figures showing the economy grew at its quickest pace this year between July and September.

China's reliance on industrial investment is being addressed. Picture: Getty

Gross domestic product in the world’s second-biggest economy rose 7.8 per cent from a year earlier marking only the second quarter in the past ten in which growth has accelerated. But an unexpected fall in exports in September, and easing growth in factory output and retail sales suggested the economy was already slowing at the end of the quarter.

Authorities are also expected to cool credit growth as inflation pushes to a seven-month high, another factor analysts say will drag on economic activity.

Ting Lu, an economist at Bank of America-Merrill Lynch, said the growth peak now appeared to have passed.

“We believe the People’s Bank of China will slightly shift its monetary policy from a moderate expansion in the third quarter to a neutral stance,” he said.

After three decades of double-digit growth heavily reliant on exports and investment, China is trying to shift or “restructure” so activity is geared much more to consumption, as in more developed countries. But the latest figures show investment accounted for over half of the expansion so far this year, underlining the ­challenge Beijing faces to restructure and provide for more sustainable growth in the future.

Reducing reliance on traditional growth drivers is expected to crimp the economy, although sluggish global demand has provided an added drag.

In the first nine months of the year, the $8.5 trillion (£5.23tn) economy grew 7.7 per cent from a year earlier, putting it on track to achieve Beijing’s 2013 growth target of 7.5 per cent, which would still be China’s worst performance in 23 years. The surprise fall in exports came after demand from emerging nations wilted as choppy financial markets sapped confidence, a trend president Xi Jinping’s regime said this week is likely to continue.

The impasse in the US over the government’s debt ceiling has also shaken confidence.

And with the yuan hitting a record high on Friday for the fifth consecutive day, Chinese exporters face the hurdle of a rising currency eroding their competitiveness.

“The economy is facing a complex and uncertain domestic and international environment,” Sheng Laiyun, a spokesman for the National Bureau of Statistics said. “In addition, we have accumulated chronic structural imbalance problems and need to deepen reforms.”

The data shows China is a long way from having consumption as the main driver of growth. It accounted for 46 per cent of growth in the first nine months, compared with 56 per cent taken up by investment. Xi’s government has sped up projects in infrastructure to support growth, but avoided more aggressive measures hoping its restructuring efforts will work.