China posts slowest economic growth in 25 years

For the first time in 25 years, China's economy grew at its slowest pace at 6.9 percent in 2015, sparking global concerns over the health of the world's second largest economy and its impact on investors as the Communist giant embarked on painful economic reforms.

PTI| Last Updated: Jan 19, 2016, 18:14 PM IST
China posts slowest economic growth in 25 years

Beijing: For the first time in 25 years, China's economy grew at its slowest pace at 6.9 percent in 2015, sparking global concerns over the health of the world's second largest economy and its impact on investors as the Communist giant embarked on painful economic reforms.

The growth rate, released by China's the National Bureau of Statistics (NBS) Tuesday, moderated to 6.8 percent for the fourth quarter, the lowest quarterly rate since the global financial crisis in 2009, and 6.9 percent for 2015.

The 6.9 percent growth rate is the slowest in the country since the 3.8 percent in 1990, a year after the bloody Tiananmen Square crackdown rocked the country and isolated it internationally.

 

Chinese Premier Li Keqiang last year had said that the Chinese government targeted an annual economic growth of around seven percent for 2015.

As per the new data, China's Gross Domestic Product (GDP) reached 67.67 trillion yuan (about USD 10.3 trillion) in 2015, with the service sector accounting for 50.5 percent, the first time the ratio exceeded 50 percent overtaking the manufacturing, the NBS said.

Analysts said if the economy slips below 6.8 percent the government may have to opt for a stimulus package which it is trying to avoid. The slowdown has already destabilised China's

stock market last year which also had negative effect in the world markets.

China had worst stock market crashes last year which wiped out about USD 3.2 trillion of capital, prompting government initiate investigation. Since then the market experienced severe?volatility. Over 20 million small investors who lost heavily in the fluctuations deserted the market.

 

After experiencing rapid growth for more than a decade, China's economy has experienced a painful slowdown in the last two years.

Since last year the government has also been vocal about the slowdown saying that the Chinese economy has entered a "new normal" in view of the transition from a state-led investment and manufacturing growth to one more dependent on services and consumption.

Some argue that China's focus on creating an economy driven by consumption is misplaced. They say as the country attempts to rebalance its economy, it should focus on productivity in order to sustain high growth.

"While higher consumption can support growth in the short run, there is little in economic theory that emphasises the expenditure side of GDP as a driver of growth," BBC quoted HSBC's John Zhu as saying in a note.

China is the biggest market for goods produced by some nations. With the Chinese buying fewer goods or commodities, it's dragging down those countries' economies and commodity prices. 

Last week, India's Commerce and Industry Minister Nirmala Sitharaman said the devaluation of the Chinese currency is a "worrying" development which will make Indian exports expensive and widen the trade deficit with the neighbouring nation.

Today's data said China's service sector contributed 50.5 percent to the country's GDP in 2015, up from 48.1 percent in 2014 as manufacturing which fired China's development in the last three decades has taken back seat.

The ratio, which has continued growing over the last two decades, exceeded 50 percent for the first time, indicating China's economic restructuring has made progress, NBS said.

Factory contribution to the GDP was 10 percent lower than services as the Chinese government tried to shift from investment powered growth to innovation led expansion.

Playing down the concerns over the slowdown, the NBS said China's economy still "ran within a reasonable range" in 2015, with its structure further optimised, upgrading accelerated, new growth drivers strengthened and people's lives improved.

However, the country faces a daunting task in deepening reforms on all fronts and needs to step up supply-side structural reforms, NBS chief Wang Baoan said.

Major economic indicators softened in 2015, with industrial output growth slowing to 6.1 percent year on year from 8.3 percent in 2014.

Urban fixed-asset investment continued to cool, expanding 10 percent year on year, compared with 15.7 percent in 2014.

Retail sales rose 10.7 percent, down from 12 percent registered in 2014.

Also the annual growth of China's property investment continued to cool to one percent in 2015, a sharp decrease from the 10.5-percent growth in 2014.

The yearly reading was down from 1.3-percent growth for the first 11 months and two-percent growth for the Jan-Oct period, according to NBS data.

Investment in residential housing, which accounts for about two-thirds of the total property investment, edged up 0.4 percent from a year earlier, compared with a growth of 0.7 percent in the first 11 months.

New housing construction dropped 14 percent year on year in the year, with new residential housing construction declining 14.6 percent.

Slowing property investment, which used to be a main driver of the Chinese economy, has been seen as a drag on overall economic growth.