China annual GDP growth of 6.9% lowest since 1990

Chinese steel production and power generation contracted last year for the first time in at least a quarter of a century, according to official statistics released on Tuesday, as the economy grew at its slowest pace since 1990.

The data come as fears about China’s economy shake global markets and capital leaves the country at an unprecedented pace. Investors are eager for clues about whether slides in China’s equity market andcurrency depreciation at the start of this year were a sign of acute distress in the real economy, or whether policymakers can engineer a gradual slowdown that avoids financial crisis and social instability.

Fourth-quarter gross domestic product growth came in at an inflation-adjusted 6.8 per cent, according to the National Bureau of Statistics, placing the full-year figure at 6.9 per cent — in line with Beijing’s target of “around 7 per cent” for the year and with economists’ expectations. The 2016 growth target is 6.5 per cent.

Meanwhile. steel output last year fell 2.3 per cent to 802.8m tonnes, while power generation declined 0.2 per cent. Coal production fell for the second consecutive year.

“[Steel] demand is down even more,” said Sebastian Lewis at Platts Metals in Shanghai. “With prices where they are now, some mills have exited the market or pulled back production.” In a report posted on its website this week, the China Iron & Steel Association predicted domestic steel consumption would fall as much as 5 per cent in 2016 after declining 4.6 per cent to 705m tonnes last year.

According to CISA, falling demand for steel is now the norm in sectors as diverse as machinery, real estate and shipbuilding, with a few exceptions such as China’s resilient car industry.

“Last year was the turning point for these industries,” said Thomas Gatley at Gavekal Dragonomics, who predicts a further 5 per cent fall in Chinese steel output this year. “Things are not getting better for these sectors . . . Net profit margins are negative. They are basically wearing down what equity they have.”

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Resilient growth in the emerging services sector helped cushion the slowdown in manufacturing and construction. The services sector grew 8.2 per cent in real terms in the fourth quarter versus 6.1 per cent for the industrial sector.

Despite the respectable headline growth figure, pain is deepening in the sectors that have traditionally driven Chinese growth and global commodity demand. Without adjusting for inflation, growth in industry and construction was a paltry 0.9 per cent for the full year, a sign that nearly four years of producer-price deflation has ravaged cash flow in the factory sector.

Overall, nominal GDP grew just 5.8 per cent in the fourth quarter and 6.4 per cent for the full year, implying that the overall economy is in deflation.