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POLITICAL ECONOMY
China's economy grew 7.8% in third quarter: AFP survey
by Staff Writers
Beijing (AFP) Oct 16, 2013


Foreign investment in China up 6.2% in first nine months
Beijing (AFP) Oct 17, 2013 - Foreign investment in China rose 6.2 percent on year in the first nine months of 2013, the government said Thursday, but it warned the world's number two economy still faced domestic and external headwinds.

And while the commerce ministry said Chinese investment overseas had increased sharply over the first nine months of the year, the amount of cash going to Japan had almost halved as a diplomatic row with Tokyo drags on.

Beijing said Foreign Direct Investment (FDI), which excludes financial sectors, reached $88.6 billion for January-September.

For September alone FDI climbed 4.9 percent to $8.84 billion, well up from the 0.62 percent rise seen in August. But the figure is sharply down from 24.13 percent seen in July and 20.12 percent in June.

Ministry spokesman Shen Danyang said the size of full-year FDI was expected to be "stable", but noted that uncertainties remained.

"Given the complex and changing global economic situation, the sustained and stable growth of the Chinese economy is facing pressure and challenges such as insufficient foreign demand and rising labour costs," Shen told a news conference.

"These will affect to some extent China's foreign investment environment," he said.

The amount of money coming from the European Union rose 23 percent year-on-year to $5.94 billion during the January-September period, while from the United States it increased 21.3 percent to $2.88 billion.

The vast majority, however, comes from a group of 10 Asian countries and regions including Hong Kong, Taiwan, Japan, Thailand and Singapore. FDI from the region jumped 7.5 percent to $76.3 billion in January-September.

"Investment from the 10 Asian countries and regions, the EU and the US maintained rather fast growth," the commerce ministry said.

Separately, Chinese investment abroad rose 17.4 percent year-on-year to $61.64 billion during the nine months, the ministry said.

However, the amount of cash going to Japan slumped 45.5 percent. The plunge comes as the two countries are embroiled in a sovereignty dispute over islands they both claim in the East China Sea -- known as Diaoyu in China and Senkaku in Japan.

The long-simmering tensions boiled over in September last year, when Tokyo nationalised the islands, sparking a bitter diplomatic stand-off.

Despite the row, Japanese investment in China during the first nine months rose 5.62 percent to $5.94 billion.

After data last weekend showed a surprise fall in September exports Shen added that China's trade "is still facing a severe and complicated external environment".

He singled out sharply slowing growth in emerging markets that has dampened demand for Chinese goods.

But the government is still confident that trade will maintain "stable development" and expects exports to see marginal growth in the next two months thanks to supportive policies and an improving domestic economy, Shen said.

China has set an eight-percent target for foreign trade growth this year.

Beijing is due to announce third-quarter economic growth figures on Friday, with economists surveyed by AFP predicting growth of 7.8 percent, which would mark an acceleration from the 7.5 percent recorded in April-June.

China's economic growth jumped to 7.8 percent in the third quarter, analysts polled by AFP forecast ahead of the release of the figures Friday, the first acceleration in the world's second-largest economy for almost a year.

The median forecast in a survey of 11 economists saw growth ahead of both the 7.5 percent logged in the April-June period and 7.7 percent in the first three months of the year.

"Both the confidence and demand within the country have improved," said Sun Junwei, a Beijing-based economist with HSBC. "Therefore, we feel the economy is on track to have a mild recovery."

The jump was mainly a result of government stimulus since late June that featured increased rail and urban fixed-asset investment, tax cuts and loose monetary policy, economists said.

The measures were taken after the growth in gross domestic product (GDP) slowed for two straight quarters and following a 7.7-percent expansion for all of 2012 -- the worst performance since 1999.

"The economy may have stabilised and rebounded by a small margin thanks to the so-called mini-stimulus since June," said Li Ruoyu, a Beijing-based economist with the State Information Centre, a government think tank.

But many of those polled said growth may now have peaked and is likely to ease in the coming months, as the comparable figures in the second half of 2012 were relatively high.

Beijing -- which has set a growth target for this year of 7.5 percent -- is unlikely to have room for more stimulus measures, with tightening possible in some sectors, they added.

"Looking forward, we believe such growth will be difficult to sustain, as real estate tightening measures may return, and an adverse base effect... may cap upward momentum," Shen Jianguang, Mizuho Securities analyst in Hong Kong, wrote in a research note.

Signs a recovery is waning have already emerged, highlighted by a surprising drop in exports last month and a sharply slower increase in manufacturing activity, which is a barometer of the health of the overall economy.

Room for further monetary loosening is limited due to factors including rising inflation and already excess market liquidity, according to analysts. At the same time skyrocketing local government debt and slowing fiscal revenue growth are restricting further tax incentives, they say.

China's new leaders have so far avoided taking aggressive pump-priming measures similar to those seen in response to the global financial crisis.

They have proclaimed a long-term goal of rebalancing the economy and since coming to power as Communist Party chief in November and state president in March, Xi Jinping has placed less emphasis on the traditional growth drivers of exports and investment, and more on consumer spending.

"We will accelerate the shift in the growth model, intensify economic restructuring and make vigorous efforts to boost domestic demand," Premier Li Keqiang said last month.

Speculation has been growing that economic reforms will be announced at a key plenary meeting of the ruling Communist Party scheduled for next month.

"The consensus is that unlike in the past, what is desired is balanced rather than high-speed growth," said Yao Wei, Societe Generale economist in Hong Kong.

But Sun of HSBC expected reform plans to be laid out at the November meeting would pave the way for expansion in the longer term.

"The key is to release the investment and selling demand of the private sector," she said. "We hope the reforms will be a critical driver for sustainable economic growth in the future."

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