China GDP growth slows to 7.4%, lowest since 1990

China's economic growth slowed to 7.4 per cent in 2014, the weakest expansion in nearly a quarter century, and is forecast to slip further over the next two years, adding to headwinds for the global economy.

China's economy forecast to see slower growth for next two years

China's economic growth slowed to 7.4 per cent in 2014, the weakest expansion in nearly a quarter century, and is forecast to slip further over the next two years, adding to headwinds for the global economy.

The numbers released Tuesday are still miles ahead of growth rates in major industrialized economies, but represent a sharp decline from China's sizzling double digit expansion in previous years. That adds to pressure on the country's communist leaders as they try to prevent a sharper slowdown and job losses while overhauling the economy.

The 2014 performance was the slowest for the world's second-biggest economy since 1990, when growth tumbled to 3.8 per cent after China faced economic sanctions because of the Tiananmen Square crackdown. It undershot the official full-year target of 7.5 per cent, the first miss since 1998, according to analysts.

Economists expect the slowdown to deepen, clouding the outlook for the world economy as China downshifts from an era of supercharged growth that fueled demand for everything from Australian iron ore to European luxury goods.

Global growth is slowing

In a report Tuesday, the International Monetary Fund trimmed its global growth forecasts for this year and next year, citing China's weakness as a key factor. It said China's growth rate would fall to 6.3 percent in 2016. China's weakness will inhibit growth in nations it imports from, especially in Asia, the report said.

Chinese businesses were bracing for a more painful year.

"The economic outlook is not so optimistic I'm afraid. Competition will be even more difficult," said Han Yi, a sales manager at Tianjin Yihsin Packing Plastic Co., which employs 700 people making plastic cups and cookie packaging in Tianjin, about an hour southeast of Beijing.

Han complained that sales in 2014 dipped about 5 per cent from the year before and the company had to improve product quality and reliability to compete for new clients. Even then, it was able to win only one new account from a rapidly expanding customer.

"The situation would be much worse if we could not win this new client," he said.

China's slowdown is partly a function of Beijing's efforts to transform the economy by weaning it off overreliance on heavy industry and trade in favour of domestic consumption. But the transition has been buffeted by a range of problems, including a slumping property market and uneven exports.

Stimulus plan?

Some analysts expect China to gradually dole out stimulus in 2015 to prevent growth from fading too fast. But they don't expect a major spending splurge as debt is already at worrying levels after the credit-fueled response to the 2008 global crisis.

"Credit risks will likely continue to prevent policymakers from using monetary policy too aggressively in order to shore up growth," said Julian Evans-Pritchard of Capital Economics, who forecasts 7.0 per cent growth this year.

Consumption should receive a boost from the slump in global oil prices but is unlikely to fully offset the slowdown of investment in areas already suffering from overcapacity such as property and heavy industry, he said.

Chinese officials have tried to lower expectations by saying growth below the official target would be acceptable.

President Xi Jinping said last year that the economy has entered a "new normal." But a surprise interest rate cut by policymakers in November indicated they were worried about a politically dangerous spike in job losses.

Growth in the fourth quarter of last year was 7.3 per cent, unchanged from the previous quarter, which was the slowest quarterly expansion in five years. China's economy grew 7.7 per cent in 2013.

At a news conference, Ma Jiantang, the director of the National Bureau of Statistics, said that last year's growth "was within a reasonable range" while growth in 2015 is expected to be "stable."

"However, we should also be aware that the domestic and international situations are still complicated and economic development is facing difficulties and challenges," he said.

Retail sector struggles

Sales staff at the Wanjiang Xiufang garment company in Dongguan, southern Guangdong province, said they were battling competition from an increasing number of rival factories even as consumer spending on the women's and children's clothing they make weakened.

Average profit on a hoodie, for example, fell to 8 yuan ($1.29) last year, down from 10 yuan ($1.60 previously, said Lin Rongguang.

"We need to produce new products with better quality but a lower price," said Lin. "I know it will decrease our profit, but we have to survive first," he said.

International agencies have trimmed their global growth forecasts partly in response to the slowdown in China, a significant driver of world economic growth.

The International Monetary Fund on Tuesday lowered its forecasts by 0.3 percentage point for each of the next two years, warning about persistent weakness in most major economies.

"Slower growth in China will also have important regional effects, which partly explains the downward revisions to growth in much of emerging Asia," the IMF's report said.

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