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China's growth drops dramatically in 3d quarter

Extent of decrease jolts economists

By Ariana Eunjung Cha
Washington Post / October 21, 2008
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SHANGHAI - China's growth decelerated sharply and unexpectedly in the third quarter of this year to 9 percent, raising fears that the global financial crisis could pull one of the world's fastest-growing economies into a recession.

Economists had expected China's exports to be affected by the slowdown in the United States and in Europe. But the extent to which other parts of its economy had deteriorated - such as industrial production, government revenue and imports - was a shock. This is the first time in more than five years that the National Statistics Bureau has recorded a single-digit gross domestic product growth rate.

China's leaders moved quickly to reassure the public, pledging a series of new measures, from boosting the supply of affordable housing and spurring lending to buying newly harvested grains. The intent behind the moves is to rev up the economy and protect it from the slowdown elsewhere.

Some economists, however, said they were still bracing for the worst - not only for China, but for other Asian countries to which it is tightly linked.

"China's growth miracle has finally ended," said Sherman Chan, an analyst at Moody's Economy.com.

Yesterday, a number of economists revised their GDP forecasts for 2009 downwards to a dangerously low level for China. J.P. Morgan dropped its estimate from 9.5 to 8.7 percent, and Merrill Lynch from 9.3 percent to 8.6 percent. Morgan Stanley kept its growth estimate at 8.2 percent.

Chan said she is concerned that if China's growth falls below the 8 percent mark, it "would be equivalent to a recession in advanced economies" because that pace is needed to support the labor market. "China's worst nightmare is yet to come, as the dragon economy's growth momentum looks set to further moderate in the next six months," Chan said in a note to clients.

As the subprime mortgage crisis that began in the United States 14 months ago spread around the globe, China seemed poised to be the only major economy that was not seriously affected. Recently, there have been signs that it, too, is being hit by the crisis. Tens of thousands of factories have closed, and the Chinese stock market has lost billions of dollars.

Economists struggled with how to explain the surprising numbers. Wang Qing, chief China economist for Morgan Stanley, suggested that the slowdown in GDP was partly psychological and that the global crisis hurt sentiment among Chinese producers in a way disproportional to the real decrease in demand.

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