China's economy is sending out mixed signals, a raft of figures showed on Thursday, with growth decelerating for the sixth straight quarter to the lowest level in years and the specter of deflation rising, while some indicators showing signs of recovery.
The latest economic snapshot highlights the challenges facing the government, which is under mounting pressure to come up with more stimulus measures on top of a $586 billion package, and makes it less likely that China can offer significant financial support elsewhere in the world.
The country's gross domestic product (GDP), the most widely watched measure of its economic strength, grew 6.8 percent from a year earlier in the fourth quarter of 2008, said Ma Jiantang, Commissioner of the National Bureau of Statistics (NBS) on Thursday at a press conference in Beijing.
That marked the slowest pace since 2002, as well as a sharp turn for the worse from a growth of 9 percent in the previous three months.
For the whole of 2008, the economy expanded 9 percent to 30.067 trillion yuan, according to Ma, the first year of single-digit growth since 2003 and well below the average rate of 9.8 percent in the past 30 years.
The latest reading on all domestic finished products and services consolidated China's position as the world's third-largest economy after the United States and Japan. The NBS last week revised the country's growth in 2007 to 13 percent from the original estimate of 11.9 percent, putting its GDP at $3.38 trillion against Germany's $3.32 trillion.
Germany's GDP increased 1 percent last year, according to earlier reports, citing Germany's federal statistics office. Europe's largest economy could have shrunk as much as 2 percent in the final quarter of 2008, the office estimated.
While developed countries may be looking at China's growth with envy, the Chinese government is feeling the heat from the current economic slump. Conventional wisdom has it that China has to keep its expansion rate above 8 percent to have its workforce employed.
As a result, China may have to create 14 million new jobs in 2009, estimated Long Guoqiang of the State Council Research Center, citing the fact that around 6 million college graduates will enter the workforce this summer and millions of rural youth come of working age.
That represents a huge challenge for the government, who fears that the worst has yet to come for the country's economy. This year will be the toughest year since 2000, Premier Wen Jiabao said Monday at a State Council meeting.
Several key indicators of the country's economic performance in December 2008 justified Wen's concerns. China's industrial output grew 5.9 percent in that period, well below the average of 16.18 percent in the first half of 2008, albeit a slight rebound from 5.4 percent in the previous month.
What is good news for the economy is that inflation continued to ease in December, giving the central bank more room to cut interest rates, the tool of choice in times of economic downturn.
The Consumer Price Index (CPI), a barometer of inflation, rose 1.2 percent year-on-year in December, after increasing 2.4 percent in November, said Ma of the NBS. That was a far cry from a peak rate of 8.7 percent in February 2008 after eight months of steady decline, thanks to falling prices of food and commodities.
However, the bad news is that inflation is falling too fast, giving rise to increasing worries of deflation, a sustained decrease in the general price level.
The Producer Price Index (PPI), another indicator of inflation, fell 0.4 percent in December from a year earlier, according to Ma, the first month of negative growth in six years. The gauge, which measures factory gate prices, went into a freefall after peaking in August at 10.1 percent and showed no signs of slowing down. It rose 6.6 percent in October and 2 percent in November.