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Tuesday, 16 December 2008

China economy slowing

BEIJING - CHINA'S capital spending rose close to 27 per cent in the first 11 months of 2008 over a year earlier, slowing from the first 10 months, rounding off a batch of data that has pointed to an abrupt slowdown in the world's fourth-biggest economy.
Its trade surplus swelled to a record in November, but exports and imports unexpectedly shrank, industrial output hit its weakest pace in years and sluggish demand globally and domestically pushed inflation down sharply, raising the risk of deflation.

The latest data showed investment in urban areas in fixed assets, such as road and factories, rose 26.8 percent in the first 11 months of the year compared with the same period in 2007.

That was marginally below expectations for a rise of 26.9 per cent and 27.2 per cent in the first 10 months of the year.

Real estate investment growth slowed to 22.7 per cent from 24.6 per cent.

'They're year-to-date data, so they understate the extent of the contraction in investment, particularly on the real estate side,' said Mr Paul Cavey, China economist at Macquarie Securities in Hong Kong.

'The much better numbers to look at are the volume numbers, so real estate under construction, which is now contracting by about 20 per cent year-on-year.'

Economists have been cutting their forecasts for China's growth as November data was released in the past week. The economy expanded 11.9 per cent in 2007, but was running at an annual pace of 9 per cent in the third quarter of this year.

The head of the International Monetary Fund, Mr Dominique Strauss-Kahn, forecast on Monday that economic growth could slump to around 5 per cent next year, well below the 8 per cent that the government is targetting.

'The possibility of a global recession is real, we realise something must be done,' he said at a conference in Madrid.

Beijing has acknowledged that the global downturn will cause unemployment to soar and could jeopardise social stability. Export firms, for example, employ tens of millions of rural migrants.

Reflecting official concern at the deterioration in economic growth, the central bank has cut lending rates sharply and the government last month unveiled a 4 trilliion yuan (S$879 billion) stimulus package.

China will face pressure to cut interest rates until the middle of 2009, the governor of the central bank, Mr Zhou Xiaochuan, said in Hong Kong. -- REUTERS

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