China's Economic Growth Dips in Fourth Quarter

China's economy grew 11.4 percent in 2007, the fastest pace in 13 years, but slowed in the final months of the year as global demand weakened and measures to curb inflation and bank lending started to bite.

Cranes stand on a construction site in front of newly completed apartment buildings in Beijing.
Greg Baker
Cranes stand on a construction site in front of newly completed apartment buildings in Beijing.

Annual gross domestic product growth eased to 11.2 percent in the fourth quarter, a touch below forecasts, from 11.5 percent in the July-September period, the National Bureau of Statistics said on Thursday.

It was the fifth year of double-digit growth for China, which is on course to overtake Germany as the world's third-largest economy this year even though analysts expect global credit woes to reduce growth to around 10 percent.

That is how fast the economy has expanded on average every year since China embarked on market reforms in 1978.

Economists had expected a fourth-quarter growth rate of 11.3 percent.

Ben Simpfendorfer, an economist at Royal Bank of Scotland in Hong Kong, said the figures showed still firm growth but no signs of acceleration. "In fact, we think the monthly data is showing early signs of cooling. We'd expect a modest deceleration in the current quarter," Simpfendorfer said.

The statistics office confirmed earlier leaks that the annual rate of consumer price inflation slowed to 6.5 percent in December from an 11-year high of 6.9 percent in November.

However, pipeline price pressures are still mounting. The annual rate of factory-gate inflation jumped to 5.4 percent in December from 4.6 percent in November.

Alarmed by the surge in inflation, which has touched off social unrest in the past, the authorities have frozen energy and transport tariffs and imposed temporary price controls on food and some other everyday necessities.

China's red-hot growth has been fuelled by heavy capital spending on factories, property and public works, but Thursday's figures showed investment in fixed assets in urban areas slowed to 19.6 percent in December, from a year earlier, compared with a 26.8 percent pace of growth in the first 11 months.

Booming exports have also propelled the economy, thanks in part to an exchange rate that many economists say is is still significantly undervalued -- even though the central bank let the yuan rise on Thursday to its highest level since it was depegged from the dollar in July 2005.

However, slowing demand from the United States due to the spillover of the subprime loan crisis applied the brakes to exports in the final months of the year, denting GDP growth.

To cap inflation and prevent overheating, Beijing has also tightened monetary policy, ordered banks to lend less and issued a raft of administrative edicts to curb the expansion of low-end industries that pollute heavily and gobble energy.

With the economy now slowing, economists expect Beijing to ease these restrictions in coming months to prevent the sort of hard landing that could weaken the legitimacy of the ruling Communist party as it prepares to show off China to the world in August's Olympic Games.