China acts to boost property sector as figures show sharp drop in growth

People walk past a poster advertising a new residential compound in downtown Shanghai yesterday. China's GDP growth slowed to 9 per cent in the first nine months of 2008 from 10.1 per cent in the second quarter. Photograph: Nir Elias/Reuters

CHINA YESTERDAY announced steps to boost its property market and help exporters after new data showed a sharper than expected decline in its growth rate, as the impact of the global financial crisis began to take hold.

After five years of double-digit expansion, figures for the third quarter showed the annual growth rate falling to 9 per cent - well below most pessimistic forecasts.

The Chinese State Council, the country's cabinet, also said it was planning increases in infrastructure spending after the economy's growth rate fell for the fifth quarter in a row.

For much of the past year, China had seemed immune to the problems in international credit markets. However, in recent weeks there have been growing signs that the economy might slow more sharply than expected, which has contributed to falling commodity prices.

The 9 per cent growth rate for China's gross domestic product in the third quarter was below the consensus forecast of 9.7 per cent and down from the 10.1 per cent annual growth in the second quarter.

In the first nine months of the year, the economy expanded by 9.9 per cent, down from 11.9 per cent for the whole of 2007. The latest economic figures were affected by restrictions on factories introduced to reduce pollution during this year's Beijing Olympics. But officials said the slowing growth in the third quarter also reflected the impact of the worldwide credit crunch.

"The global financial crisis and subsequent slowdown has started and will continue to have a negative impact," said Li Xiaochao, spokesman at the National Bureau of Statistics. "The subprime crisis that broke out last year in the US is still spreading and deepening."

Economists believe the Chinese economy will continue to decelerate further, especially if the global financial crisis starts to hurt exports from China, long one of the main drivers of economic growth. Exports have so far continued to grow at an annual rate of more than 20 per cent this year, in spite of the economic slowdown in the US and the EU, now its biggest trading partner.

The government said yesterday that taxes on house purchases would be reduced and value added tax rebates would be increased for exporters of textiles and machinery. However, there is a debate in official circles about just how big a fiscal stimulus is needed to prevent a sharper slowdown. - ( Financial Times service )

This article appears in the print edition of the Irish Times