Property weakness ‘will lower China’s GDP growth’

BEIJING — Weakening property demand will dim China’s economic prospects, dragging growth lower in the second-largest economy, said Mr Li Daokui, a former central bank adviser.

Gross domestic product will expand 7.4 per cent this year before growth slows further to 7.3 per cent next year, said Mr Li, head of the Economic Research Center at Tsinghua University. The centre previously put China’s growth rate this year at 7.6 per cent.

Mr Li’s latest forecast echoes those of other state-backed researchers in anticipating lower growth as economists from quasi-official sources assign little probability that leaders will splurge on stimulus to meet the government-set growth target. Premier Li Keqiang has reiterated this year that growth can be slightly above or below 7.5 per cent and said last week that China prefers reform to stimulate the economy.

“The property industry, which has been a traditional driving force for the Chinese economy, has lost power and is expected to remain weak,” Mr Li said.

China’s growth goal was 7.5 per cent in 2012 and 2013, and expansion came in at 7.7 per cent each year, said the statistics bureau. The International Monetary Fund (IMF) in July urged China to set a growth target of 6.5 per cent to 7 per cent for next year, warning of a “web of vulnerabilities” in the economy from real estate and rising debt.

Chinese policymakers eased some property restrictions this month for the first time since the global financial crisis, based on the central bank’s statement on Sept 30.

Still, slowing property investment and industrial production pose a threat to growth, while the government appears adamant in its resolve to press ahead with reform and eschew broad stimulus to repeat excessive investments in industries with overcapacity and a housing bubble.

In a speech in Germany on Saturday, Premier Li said China would avoid a hard landing despite worries of a slowdown in the world’s No 2 economy and a flagging real-estate market.

The comments, reported by state news agency Xinhua, echoed earlier ones he made in London in June.

“China’s economy will not suffer a ‘hard landing’ like some people fear, but will bring a positive impact to the global economy,” Premier Li said in the city of Hamburg.

China’s third-quarter growth is likely to be its weakest in more than five years as a property downturn weighed on demand, based on a Reuters poll of 20 economists released on Friday.

The poll said the economy may have expanded 7.3 per cent in the third quarter from a year earlier, the weakest reading since 6.6 per cent growth in the first quarter of 2009.

Premier Li said staying power will be more important to China’s economy than speed of growth. “Economic development is not a sprint, but a long-distance race without end. You need a certain amount of speed, but even more important are endurance and stamina,” he said.

Mr Ma Jun, chief economist at the People’s Bank of China, also said on Saturday that the chance of China facing a hard landing was very small. The Chinese central bank economist was talking at the IMF and World Bank fall meetings in Washington.

Mr Chen Dongqi, a deputy director of the research arm of the National Development and Reform Commission, said China’s growth may slow to 7.1 per cent next year from an estimated 7.4 per cent this year.

In the event growth slows to a range of 6.5 to 6.8 per cent, China can still opt for monetary policy tools including benchmark interest rates and required reserve ratio, Mr Chen said at a forum in Beijing on Sunday. On the fiscal side, the country may also dispense resources to boost investment in railways to cushion a slowdown, he said. AGENCIES