China’s economy records a soft start to the year, but the policy response (if any) is uncertain

• China’s economy expanded by 7.0% in Q1 2015, down from 7.3% in Q4 2014. This was the weakest rate of growth since March 2009 – when China was at its lowest point during the GFC.
• Our forecasts are unchanged – with China’s economy to grow by 7.1% in 2015 and 6.9% in 2016. Chinese authorities have expended considerable political capital in describing the slowing trend as the ‘new normal’ and are unlikely to tolerate growth falling below their target for a second straight year.
• China’s industrial sector has slowed further, with growth at 5.6% yoy in March (down from 6.8% across January and February). This result was the slowest rate since early 2009 – at the height of the GFC. Similarly, fixed asset investment – driven by manufacturing and real estate – grew by its slowest rate since 2001 (though lower prices for inputs such as steel mean a less significant slowdown in real terms).
• China’s trade surplus plunged in March – down to US$3.1 billion (from a record US$60.6 billion in February), as exports (-15%) fell more sharply than imports (-13%) year on year.
• China’s policy makers face significant challenges in coming months – which will test the overall commitment to broad-based financial reforms. With Q1 GDP growth at the Government’s target for 2015, the PBoC will face pressure for stimulus – potentially via further cuts to interest rates and the Reserve Requirement Ratio (RRR) – but the bank will be concerned about further growth in the already high debt levels.

For further details, please see the attached document:

•  China Economic Briefing – 15 April 2015 (PDF, 129KB)