China's economic growth 8.9% in fourth quarter

China's economy, the worlds second-largest, grew at its slowest pace in more than two years, latest government figures show.

Gross domestic product expanded by 8.9% in the three months to the end of December, from a year earlier. That is down from 9.1% in the previous quarter.

The statistics bureau data showed that growth for the full year was 9.2%, down from 10.4% in 2010.

Analysts said they expect the economy to slow further this year.

"Looking at the rest of 2012, you are going to see an even sharper slowdown in the first quarter because of the effect of monetary tightening," said Arjuna Mahendran, chief Asia strategist at HSBC Private Bank.

"It will pick up later in the year." Growth concerns China has previously been one of the fastest-growing economies in recent years.However, stimulus measures implemented by the government have created the risk of asset bubbles developing and China is looking at ways of gentlyslowing growth to what it sees as more sustainable levels.

These measures have included a curb on lending to prevent overheating in the property and investment markets, and tightened monetary supply.

Tuesday's data showed that real estate investment in China rose 27.9% in 2011, down from an annual growth rate of 29.9% between January and November, the National Bureau of Statistics said. Slowing exports to Europe and the fear of property bubbles have hindered growth However, it is not just domestic factors influencing growth. Another reason for the slide is the slowdown in exports because of weakening demand from Europe and the US. Data showed output from factories and workshops in the country rose 13.9% for all of 2011, which is a slower pace than in 2010.

Sustainability Some analysts are now calling for China to alter its growth strategy towards more sustainable levels, even if it is slower.

"If you look at the composition of the growth, it is overwhelmingly delivered by an investment boom," said Patrick Chovanec, associate professor at Tsinghua University's School of Economics and Management in Beijing.

"They have to focus on a sustainable development path, away from investment and more focussed on domestic markets here in China". Chinese authorities have been trying to boost levels of domestic consumption to reduce the country's reliance on exports.

China PMI tops forecast, hard landing fears ease China's factory sector expanded slightly in January, confounding expectations for a contraction and supporting hopes the world's second-biggest economy will avoid a hard landing, a government purchasing managers' index showed.

A similar HSBC survey showed the sector contracting the least in three months, further backing the view that a downturn in manufacturing may be bottoming out as the government adopts modest measures to support growth.

The official PMI rose to 50.5 in January from 50.3 in December, beating market expectations of 49.5 as new orders rose to a three-month high. A level of 50 demarcates expansion from contraction.

"This suggests that the manufacturing sector has stabilised somewhat due to supportive fiscal and monetary policies," said Li-Gang Liu, China economist at ANZ in Hong Kong.

"Indeed, the stronger-than-expected PMI supports our baseline scenario of a soft landing." The Australian dollar gained a third of a cent on hopes that the higher-than-expected government PMI would support Chinese demand for the country's commodities.

"January PMI continued to pick up slightly from the reading of December, indicating that the economic slowdown trend is gradually stabilising," Zhang Liqun, a researcher with the Development Research Centre of the State Council, said in the official statement.

"The improvement in both new order and stock of purchase sub-indexes reflected the factory production is recovering. But the new export order sub-index dropped last month, showing that the external demand is shrinking and we should pay high attention to the possible hit from external uncertainties." The central bank is shifting towards a looser policy stance to ward off a sharp growth slowdown, although lingering inflation concerns point to a gradual move. Fiscal policy remains expansionary this year.

The official sub-index for new orders rose to 50.4 in January, its highest since October, from 49.8 in December. However, reflecting a sluggish global economy and fears of recession in Europe, new exports orders fell for the fourth month running. The index dropped to 46.9 from December's 48.6.

The HSBC PMI stood at 48.8 in January - broadly in line with its initial reading before China's Lunar New Year holiday. It marked a slight improvement from 48.7 in December, but HSBC Chief China Economist Qu Hongbin said the data showed more government support was needed for the economy.

"The final results of January's PMI survey confirmed the still weak growth momentum of manufacturing activities into the New Year," Qu said in a statement.

"This calls for more aggressive easing measures to support growth, given that inflation is no longer a concern," he said.

HSBC said the areas of concern in the PMI overshadowed the bright spots.

The overall output index pointed to a faster contraction in January than in December - reflected in a purchasing index , which sank to a near three-year low.

HSBC indexes measuring new export orders and backlogs of work all rose and pointed to growth. The new orders index rose, but remained below 50, suggesting contraction.

MORE EASING The PMIs are bouncing around their weakest levels in three years.

China's Finance Minister Xie Xuren highlighted increasing risks to exporters from weakening overseas demand, in remarks published on Wednesday.

"As external demand is now clearly fading, Chinese exporters are facing increasing difficulties," he said.

The official PMI, which is weighted more towards big state firms, generally paints a rosier picture of Chinese factories than a PMI produced by HSBC, which includes small private firms that have been hit harder by credit curbs and weaker demand.

Despite the uptick in the official PMI, most economists expect China's economic growth to slow further in the first quarter, dragged down by weak exports and a slowdown in the rate of property investment.

HSBC's Qu believes economic growth in the first quarter of 2012 will slow down to as little as 8 percent, which would be the weakest pace in almost three years, from 8.9 percent in the fourth quarter of 2011.

A Reuters poll forecast first-quarter growth of 8.2 percent, which it projected would be the low point of the year. However, full-year growth would still slowdown to 8.4 percent, the weakest in a decade.

In a nod to growth concerns, the central bank announced a cut bank reserve requirement ratios (RRR) - the first such cut in three years - at the end of November. More reserve cuts are expected in coming months to support growth, although the central bank has been injecting more cash into the banking system through its money market operations. (BBC and Reuters)