Crikey

Just as the Chinese Government attempts to talk up the quick impact of its $US585 billion stimulus package, there’s news that the Sino economy slowed again in the March quarter.

China’s Gross Domestic Product rose at an annual rate of 6.1% in the three months, down on the annual 6.8% rate in the December quarter, figures released in Beijing this morning show.

That was the slowest rise in a decade and was 4.5 percentage points down on the first quarter of 2008 when the figures were cut by severe snowstorms, bad weather and associated production and power shortages.

The figure is under the 9% growth rate in 2008 and 12% recorded in 2007. Western observers like the OECD and World Bank are forecasting China will grow by around 6.3-6.5% this year; the Government’s official target is 8%.

China doesn’t issue quarter-on-quarter growth figures, but the fact that March’s figure was lower than December’s, which was in turn lower than September’s, indicates that growth has probably stalled, or declined slightly in the country in the past six months.

But there were signs of stronger growth in March as the stimulus package kicks in and in a comment a spokesman for the country’s Statistics Bureau said:

In early 2009, all regions and departments effectively implemented the policies and measures set by the central government on further stimulating domestic demand, promoting the sound and fast growth of national economy, and responded with tenacious spirit to the impacts from the international financial crisis, the overall national economy showed positive changes with better performance than expected.

In the first quarter of this year, the total value added of the industrial enterprises above designated size was up 5.1 percent year-on-year, or 11.3 percentage points lower than that in the first quarter of 2008, but March witnessed increased growth with 8.3 percent compared with 3.8 percent in the first two months of this year.

The total value of imports and exports for the first quarter was US$ 428.7 billion, down by 24.9 percent year-on-year. The value of exports was US$ 245.5 billion, down by 19.7 percent, and the value of imports was US$ 183.2 billion, down 30.9 percent.

The trade surplus was US$ 62.3 billion, an increase of US$ 20.9 billion over the same period last year. In the first quarter of this year, the total value of foreign direct investment actually utilized was US$ 21.8 billion, a year-on-year decrease of US$ 5.6 billion.

The report showed unemployment fell in urban areas in the quarter and more people had trouble finding jobs. Companies of all sizes experienced falling profits in the quarter, with a 37% dip registered in the first two months of the year.

The news comes at the end of a week of data releases that showed cautious signs the stimulus package was working, with a surge in bank lending in March, but a drop in inflation and a fall in foreign investment for the sixth month in a row.

Exports fell by 17%, better than the 25% fall recorded in January-February (lumped together this year), but the fall in imports deepened to just over 25% in March, from a fall of about 24% in the first two months of the year. But the imports fall was lessened by a steady stockpiling of copper, iron ore and several other commodities by the Chinese Government and processors, such as steel mills in March and preceding months.

Macquarie Securities said this week that a key factor to watch in China will be whether the stimulus policies can reflate the depressed property market and kick-start construction activity in the real economy.

The report shows spending on real estate was up 4.1% in the quarter after being up 1% in January and February. That’s far less than the double digit increases of a year ago.

The surge in bank lending, which so far seems to be the major part of the stimulus, with lending rocketing to 4.85 billion Yuan in March — that’s almost all of the 5 billion Yuan forecast by the government for all of 2009.

Western commentators have largely taken that to be a positive, but then the country’s central bank issued a statement that had both good and bad connotations.

It said it would maintain liquidity in the economy, and planned to “strictly control” credit to some sectors of the economy after the country recorded the record surge in bank loans and money supply in March.

The phrase “strictly control” was taken to mean official concern at the rapid rise in lending, much of it rumoured to have helped the Chinese stock market rise by 38% so far this year.

The central bank also identified the need to “give more support to the agricultural sector, small and medium enterprises and other weak links” and “concretely resolve some financing difficulties faced by companies”. But it also “wanted to “strictly control lending to high-polluting, high-energy consuming industries and to those with overcapacity”.

And finally, in another sign of how worried the Government is about the depressed export picture, the State Council this week cut export taxes for some electronics products and offered cheaper credit to manufacturers to increase shipments overseas. These are only the latest of a series of similar moves to try and arrest the decline and kick start exports.