China’s Growth Slows But A Rebound May Be On The Way

China’s economy expanded by 6.1% in the first quarter, its slowest pace in at least a decade. But many economists believe this will be the low point for the world’s third-largest economy, as signs of recovery are already starting to emerge.

A collapse in exports and industrial overcapacity are the two main factors dragging on China’s economy. The 6.1% expansion follows growth of 6.8% in the previous three months and 9% for all of 2008.

The global financial crisis has obliterated overseas demand for Chinese goods and factory closures have force millions of migrant workers back to the countryside. But still other data suggests that this could be the low point for China’s economy.

Industrial production expanded by 8.3% in March from a year earlier, up from 3.8% in the first two months of the year. Retail sales rose 14.7% - an indication that domestic demand is picking up. Auto sales jumped 10% in March from a year earlier, and 27% from February, to 772,400.

Even the decline in exports is slowing. After tumbling by 25.7% in February, exports fell 17.1% March.

Also, a 30.3% surge in urban fixed-asset investment - China’s benchmark measure of capital spending - is proof that the nation’s robust $585 billion in stimulus is beginning to take effect.

Beijing continues to assert that it will reach its growth target of 8% annual growth. And while independent analysts remain skeptical, they still foresee stronger growth for the Asian juggernaut going forward.

The Organization of Economic Cooperation and Development (OECD) forecasts 6.3% growth for China’s economy this year, compared with a 4.4% contraction in the United States. Royal Bank of Scotland Group PLC (RBS) has raised its forecast from 6.5% to a range of 7%-7.5%.

“The stimulus policies - both fiscal and credit expansion - led by the government is certainly the main driver of the rebound. The full impact of those stimulus policies will be shown in the coming months,” UBS Securities economist Wang Tao told The Wall Street Journal.

Wang estimated that first-quarter GDP grew around 7% from the fourth quarter on an annualized, seasonally adjusted basis, and she expects sequential growth of 12% in the second quarter.

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