China: GDP growth drops to 25-year low in 2015, but meets annual target
January 20, 2015
Economic activity remained weak in the fourth quarter of 2015. China’s GDP increased 6.8% in Q4, which came in marginally below the 6.9% expansion observed in Q3. Economic growth averaged 6.9% in 2015 as a whole, which was in line with both the government’s target of “approximately 7.0%” and analysts’ expectations. However, economic growth fell short of the 7.3% rate observed in 2014 and represented the slowest pace since 1990.
Data showed that services continued to outperform in the final quarter of 2015, while growth in the closely-watched industrial sector stabilized in Q4. The tertiary sector grew 8.3% in Q4, which came in below the 8.4% expansion tallied in Q3. Conversely, growth in the secondary sector held steady at 6.0% in Q4. The agricultural sector posted a 3.9% expansion in Q4, which was the fastest rate in 2015.
Although the National Bureau of Statistics does not provide a breakdown of GDP by expenditure, additional data suggest that growth in the driver that has traditionally boost the Chinese economy and global commodity demand decelerated further toward the end of the year. Despite a respectable growth figure, urban fixed-asset investment—which covers infrastructure and factory construction—expanded an accumulated 10.0% in the full year 2015. The result came in below the 15.7% increase in 2014 and marked the slowest full-year expansion in 15 years. Conversely, and in line with the new Chinese strategy of rebalancing the economy away from investment, private consumption seemed to remain healthy. Without adjusting for inflation, growth in retail sales rose from 10.7% in Q3 to 11.1% in Q4.
On the external front, nominal merchandise exports continued to contract in Q4, falling 5.2% year-on-year. Nonetheless, the drop was softer than the previous quarter’s 5.8% decrease. The moderate improvement likely reflects that the weakening of the yuan supported Chinese exports. Meanwhile, imports continued to contract at a double-digit rate in Q4, reflecting the deceleration in Chinese domestic demand.
Sequential data showed that GDP in Q4 increased 1.6% adjusted for seasonal factors. This result was down from the 1.8% expansion registered in Q3 and hence confirmed the slowdown in economic activity at the end of 2015. Moreover, overall nominal GDP grew 6.4% in 2015, which was below the 8.1%increase tallied in 2014, implying that the overall economy is in deflation.
The deceleration observed in 2015 is consistent with Chinese authorities’ willingness to tolerate slower growth under the “new normal” approach. The country’s leadership has promised structural reforms to boost long-term growth. President Xi Jinping has stated that economic policy in 2016 will focus on “supply-side reforms” and has pledged to streamline the bloated state-own enterprise sector. That said, Chinese policy makers are also relying on demand-side stimulus to cushion the current slowdown. The People’s Bank of China cut interest rates five times in 2015 and pumped RMB 2.5 trillion (USD 380 billion) into the banking system though reserve-ratio cuts in order to boost corporate investment and housing loans.