China's Economy Shows More Signs of Slowing

Jan. 18, 2012
World Bank forecasts growth of 8.4% in 2012, down from 9.2% in 2011.

China's economy is showing signs of slowing, with foreign investment falling for the second straight month in December and home prices dropping in most cities, the government said Wednesday.

The latest indicators came a day after data showed the economy expanded 9.2% last year, narrowing from 10.4% in 2010, as global turbulence and efforts to tame high inflation put the brakes on growth.

The world's second-largest economy is widely forecast to slow even further this year despite efforts to maintain growth by easing credit, with the World Bank Tuesday forecasting growth of 8.4% in 2012.

Foreign direct investment in China fell for a second straight month in December, down 12.7% year-on-year to $12.2 billion, as the worldwide slowdown began to take hold, the Ministry of Commerce said.

In November, foreign direct investment registered its first year-on-year decline for a single month since July 2009.

Ministry spokesman Shen Danyang blamed the investment drop on weakness in the U.S. and European economies, and warned the external environment could also hurt exports this year.

"Some major developed economies such as the United States and Europe are weak. Companies are being more cautious in their investment decisions and global multi-national investments have dropped," he told a news conference.

Overall foreign investment in China held up well last year, rising 9.7% to a record $116.0 billion, as Asian countries boosted spending.

Nonetheless, growth was slower than in 2010, when blistering economic expansion and expectations for a stronger currency led to a 17.4% surge in the flow of foreign money.

Inward investment from U.S. companies suffered the most in 2011, plunging 26.1% to $3.0 billion, while European investment registered a fall of 3.65% to $6.4 billion.

The strongest growth came from Asian countries, with investment from Hong Kong, Macau, Taiwan, Japan, the Philippines, Thailand, Malaysia, Singapore, Indonesia and South Korea combined rising 14% to $100.5 billion.

The latest figures came as the World Bank warned that economic turmoil in Europe was spreading to developing and other high-income countries that had hitherto been unaffected.

"Capital flows to developing countries have weakened sharply as investors withdrew substantial sums from developing-country markets in the second half of the year," it said in a new report entitled Global Economic Prospects.

China's trade surplus shrank in 2011 to $155.14 billion as export growth slowed sharply, reflecting the economic turmoil in Europe and the U.S., according to previously released figures.

"China's exports will be difficult, the situation is very grim. We're concerned about the growth rate of imports and exports," Shen said.

In another worry for China's economy, home prices in nearly three-quarters of its major cities fell in December from November and analysts say the property market correction could have larger implications.

"If this trend continues, with property transaction volume falling, we will have to see whether China's economy can cope with it," Liu Ligang, head of Greater China economic research for ANZ Group in Hong Kong, told AFP.

Some 52 of 70 Chinese cities tracked by the government, including Shanghai and Beijing, recorded month-on-month falls in new home prices, the National Bureau of Statistics said, with the total up slightly from 49 in November.

China has introduced a range of measures aimed at curbing property speculation over the past year, such as bans on buying second homes, hiking minimum down payments and introducing property taxes in select cities.

Analysts worry a collapse in the property market could hurt the economy and say the government might have to roll back measures to offer debt-burdened local governments, which depend on land sales, some relief.

In December, China moved to ease credit by trimming bank reserves for the first time in three years, but the property industry is waiting to see if the government might relax measures aimed specifically at the sector.

"These draconian measures have been in place for more than a year, but if they go on for much longer it starts to get a bit dangerous for the broader economy," said a Shanghai-based property analyst, who spoke on condition of anonymity.

Copyright Agence France-Presse, 2012

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