October 18, 2011

China Slowdown Worries Markets

Asian exchanges react as growth slacks off

Asian markets closed down Tuesday as China reported its slowest growth in two years for Q3. Concerns that the eurozone crisis was taking its toll on the global economy led to losses throughout the region; the Nikkei was down 1.55%, while the Hang Seng fell 4.23%. The Shanghai Composite Index closed down 2.3%, its largest drop in nearly a month, and the MSCI Asia Pacific Index dropped 2.7%.

Bloomberg reported that data released by China’s statistics bureau on Tuesday indicated that the economy grew 9.1% in Q3 from the previous year; that was below economist estimates of a median 9.3%, and down from a 9.5% increase in the previous quarter. Weaker demand and tightening credit both played a role in the fall, although industrial production was up 13.8% in September from the same time in 2010. That boils down to a 2.3% increase in economic growth for Q3 from Q2, seasonally adjusted, according to the statistics bureau, and compares with a revised 2.4% increase for Q2 from Q1.

Worries haunting investors concerning the risk of bad debts for banks, small business funding, and whether local governments will be able to repay funds they borrowed for infrastructure projects all contributed to the markets’ losses. This was underscored by a report in China Business News that rail projects have been stopped due to shortfalls of cash, and a piece in the People’s Daily citing the same reason for a halt to some road building projects.

Fixed-asset investment, excluding rural households, increased 24.9% over the first three quarters; economists had estimated a 24.8% increase and a gain of 25% through August.

Property investment for the first three quarters increased 32%; for the first eight months of the year it had totaled 33.2%. Retail sales grew by 17.7%; in August the figure was 17%. Inflation was over 6% for the fourth month in a row. Beijing’s target for the year is 4%.

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