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China's economy feels chill from global crisis

SHANGHAI, China – The laid-off factory workers and slumping car sales indicated China's booming economy had no immunity from the global meltdown. New figures confirm it: China's economy is still growing, but at the slowest pace in five years.

The National Statistics Bureau said Monday that China's economy expanded by just 9 percent in the third quarter. That marks the slowest rate since the second quarter of 2003, when the outbreak of Severe Acute Respiratory Syndrome, or SARS, cooled growth to 6.7 percent.

In comparison, China realized 10.6 percent growth in the first quarter and 10.1 percent in the second quarter.

After years of feeding a voracious global appetite for its exports, China is seeing demand dry up as consumers in the U.S. and Europe cut back on spending in the wake of the mortgage-debt meltdown. The shift is a serious challenge for Beijing leaders as they struggle to keep job-creating growth on an even keel.

Protests by laid-off workers demanding their paychecks have already erupted as thousands of factories fold under the pressure of rising costs and slowing orders. Affluent city dwellers are feeling the pinch of sinking share prices and a weak housing market — sales of passenger cars fell 6.2 percent in August from a year earlier, according to the China Association of Automobile Manufacturers.

"The growth rate of the world economy has slowed down noticeably. There are more uncertain and volatile factors in the international economic climate," National Statistics Bureau spokesman Li Xiaochao said in a nationally televised news conference.

"All these factors have started to release their negative impact on China's economy," Li said.

Exports have just begun to slow — the trade surplus hit a monthly record $29.3 billion in September as costs for imports eased thanks to lower prices for crude oil and other commodities.

A weaker China spells trouble for other Asian countries that have thrived on robust sales of raw materials and other manufacturing inputs to their giant neighbor.

"The problem is that China's economic growth is slowing down when it is most needed," said Huainan Zhao, a banking expert at Cass Business School in London.

Growth for the first nine months of the year was 9.9 percent, compared to 11.9 percent for all of 2007. Economists have cut China's forecasts for 2008 to as low as 9 percent.

Before the data's release, government leaders met to map a strategy for countering the slowdown. Monday newspapers carried news of planned measures to spur lending and stabilize China's volatile financial markets.

Leaders pledged to boost export rebates and provide more support for the ailing housing sector. They also vowed to spend more on welfare and construction, such as rebuilding the areas devastated by the May earthquake in central China.

Instead of bouncing back after a lull during the Beijing Olympics, China's industrial boom has slowed further, with output growing 11.4 percent year-on-year in September. That compares with 12.8 percent in August.

"China's manufacturing sector is not immune from the global economic downturn," said Sherman Chan, an analyst for Moody's Economy.com.

Share prices are still down nearly 70 percent from the peak they hit a year ago. On Monday, the benchmark Shanghai Composite Index drifted lower but then rebounded in the afternoon, gaining 2.3 percent to 1,974.01 as property developers and banks rallied in anticipation of favorable policy moves.

"As the golden rule goes, the time of maximum pessimism is the best time to buy, so prices rebounded on bargain hunting," said Zhai Peng, an analyst at Guotai Junan Securities in Shanghai.

Still, there are glimmers of good news.

Inflation slowed in September, the bureau said, to a 15-month low of 4.6 percent.

For Beijing, that means the effort spent on reining in bank lending and keeping inflation in check can now be refocused on keeping growth steady.

"The single important policy goal is growth, and the government will rapidly roll out fiscal, credit and trade policies to achieve this goal," investment bank Merrill Lynch said in a research report released Monday.