* China Q4 GDP +7.9 pct year-on-year vs Reuters poll f'cast
* China 2012 GDP +7.8 pct y/y vs f'cast 7.7 pct
* 2012 was weakest full-year growth since 1999
* Recovery tepid amid uncertain outlook for global economy
By Kevin Yao and Aileen Wang
BEIJING, Jan 18 China's economy grew at its
slowest pace in 13 years in 2012, though a year-end spurt
supported by infrastructure spending and a jump in trade
signalled the foundation for the stable growth path Beijing says
is vital for economic reform may be in sight.
Evidence of a burgeoning recovery in exports, stronger than
expected industrial output and retail sales, together with
robust fixed asset investment, all indicated that Beijing's
pro-growth policy mix has gained sufficient traction to underpin
a revival without yet igniting inflationary risks.
Year-on-year growth of 7.9 percent in the fourth quarter
beat a consensus forecast of 7.8 percent in a Reuters poll and
snapped a streak of seven consecutive quarters of slowdown.
The performance was at the upper end of the 7-8 percent rate
economists reckon is needed to deliver on reforms essential to
China's long-term development after three decades of red-hot,
Full year growth of 7.8 percent was also just ahead of the
poll's 7.7 percent call and, although the weakest since 1999,
comfortably ahead of the government's 7.5 percent target, which
just months ago seemed to some economists to be in jeopardy.
"It's kind of like a golden spot - stronger growth, but not
strong enough to trigger a lot more inflationary concern. That's
perfect for equity markets." said Dariusz Kowalczyk, Asia
ex-Japan senior economist and strategist at Credit Agricole CIB
in Hong Kong.
"What everybody wants is growth that's strong enough to give
us peace of mind that revenues will increase and there is no
hard landing risk, but not excessive, not strong enough to
trigger inflation. And this is what I think we are getting. I'm
bullish on China still."
Market reaction was generally upbeat, with Asian shares
advancing and platinum and palladium following suit, while oil
traders took the opportunity of data confirming the recovery to
book profits after two sessions of steep rises.
China's new leaders must stabilise the economy this year to
keep employment high while avoiding a surge in housing prices
and inflation that could undermine reforms needed to overhaul
the country's export-oriented growth model.
Without stability, incoming President Xi Jinping and Premier
Li Keqiang, who are set to be confirmed in March, have no chance
of delivering a slew of reforms they say are needed to tackle a
host of financial, industrial and income imbalances that
threaten China's future.
ADDRESSING THE WEALTH GAP
China's statistics chief, admitting the country's wealth gap
was "relatively large", released a recalculated indicator of
economic inequality on Friday, the first time in several years
that officialdom has addressed the sensitive issue head-on.
China's Gini coefficient stood at 0.474 in 2012, down from
0.477 in 2011 and from a peak of 0.491 in 2008, Ma Jiantang, the
head of the National Bureau of Statistics, told reporters at a
press conference on 2012 economic performance.
The index ranges from 0 to 1, with the 0.4 mark viewed by
analysts as the point at which social dissatisfaction may come
to a head.
China's leaders say rebalancing the economy to consumption
and away from the investment and export model followed for the
last 30 years holds the key to tackling inequality, but detailed
data on Friday underlined the scale of that task.
While consumption made the biggest contribution to growth in
2012, with a 51.8 percent share, Q4 marked the third consecutive
quarter of decline.
The fall has been driven by the government's focus on using
investment spending as the main expedient to underpin an economy
still levered to external demand.
Exports generate about a third of economic activity and
sinking demand from foreign customers in struggling European
Union and United States economies dragged on growth in 2012. Net
exports made a negative 2.2 percent contribution, data showed.
With China's consumers still relatively poor - average
annual urban disposable income was just 21,810 yuan ($3,500) in
2011 - it remains too hard for the government to rely on them to
help compensate for any shortfall from the export sector.
"There's just not enough money," said Liu Jiongda, 35, a
manager at a Shanghai logistics company who earns just over
11,000 yuan ($1500) per month, more than half of which goes
straight into a mortgage on a property he bought in 2009.
"If the government wants a so-called consumer culture, they
have to cut the amount of tax I have to pay. That is simple. If
I have more money then I'll be willing to spend more."
Investment meanwhile, at 50.4 percent, has picked up as the
new leadership has looked to underpin a recovery with spending
on infrastructure - a tried and tested method.
Quarter-on-quarter growth of 2.0 percent was below the
market's expectation of a 2.3 percent rise, which was taken as a
sign that the recovery's momentum is not strong enough to worry
the authorities into pre-emptive action to snuff out any whiff
of inflation - China's long term policy pre-occupation.
The People's Bank of China, which cut interest rates twice
in mid-2012 and cut banks' reserve ratios (RRR) three times
since late 2011, has since switched to short-term cash
injections via open market operations to guide monetary policy,
apparently wary of fanning price pressures or encouraging a
"We need to keep vigilant against inflation," NBS chief Ma
Jiantang told a news conference on Friday.
The risk of policy tightening looms as growth gathers pace,
leaving Beijing with a fine line to tread to ensure the recovery
continues without reigniting speculative activity in the key
area of real estate.
Data released alongside GDP numbers on Friday showed home
prices extending a slow rise in December, with an average rise
of 0.3 percent month-on-month in 70 major Chinese cities, the
fifth month in the last six to show an increase, despite
government efforts to temper prices.
Real estate investment, which accounted for 13.8 percent of
China's gross domestic product in 2012, rose 16.2 percent last
year from a year earlier and remains a key component of overall
fixed asset investment - the cornerstone of Beijing's recovery
Annual fixed asset investment (FAI) growth was 20.6 percent
in 2012, versus the 20.7 percent forecast in the Reuters poll.
"Typically FAI falls off at the end of the year - on average
December FAI is 1 percentage point lower than November, but this
time there was only a 0.1 percent edge off," said Ken Peng, an
economist at BNP Paribas in Beijing, highlighting the strength
of investment spending and the risk that it could be fuelling
Investment spending was the key near-term concern of Ren
Xianfang, senior analyst at IHS Global Insight in Beijing.
"We have to watch the investment numbers especially because
China has started (to put) controls on local financing, so this
could limit fund raising and investment by local governments,"
"So far it's just talk, but if they implement measures like
the sharp tightening in 2011 the impact on growth could be very
substantial," Ren added, highlighting Beijing's policy dilemma.
Other data released alongside GDP showed industrial output
grew 10.3 percent in December from a year ago, versus
expectations of 10.1 percent.
Retail sales in December rose 15.2 percent on a year ago
versus an estimated 14.9 percent in a Reuters poll.
A fourth-quarter recovery had been heralded by an
acceleration in industrial output in October and November and a
jump in exports in December, although some analysts believe last
month's sharp expansion in trade could be a blip.
China's exports grew 14.1 percent last month compared with a
year earlier, racing past market expectations of 4 percent and
November's 2.9 percent pace.
Ting Lu, chief China economist at Bank of America/Merrill
Lynch in Hong Kong, was confident that the data would not change
the near term policy stance.
"Maintaining stable growth is the new leadership's key
policy mandate in 2013," Lu wrote in a note to clients, adding
that he expected a growth target of 7.5 percent to be adopted
for 2013 and policy calibrated to delivering it.
"Pro-growth policies in 2012 will be extended into 2013, and
big-bang stimulus will be avoided unless there is another global
financial crisis. Within 2013, policy will likely be marginally
tightened towards the second half of 2013 on concerns of rising
inflation, rising home prices, investment overheating and
financial system risks," Lu said.