China’s Growth Slowed by Service, Farm Sectors

January 22, 2019 Updated: January 22, 2019

BEIJING—Weakness in the service and farm sectors slowed China’s economic growth in the fourth quarter, despite a strong pickup in construction activity, official data showed on Jan. 22.

Services grew 7.4 percent from a year earlier, slowing from 7.9 percent in the third quarter, while growth in agriculture slowed to 3.5 percent from 3.6 percent, the National Bureau of Statistics (NBS) said.

The sector-by-sector breakdown follows release of headline GDP figures on Monday that showed China’s economy in the last quarter expanded at its slowest rate since the global financial crisis due to faltering domestic demand and an ongoing trade war with the United States.

The services sector accounted for almost half of gross domestic product in the quarter by value as China continued to transition towards a service-oriented economy, while agriculture contributed about 10 percent, according to Reuters’ calculations based on the latest data.

Services suffered a broad-based slackening from real estate to tech, as these industries braced for more cautious investor lending and softer consumer demand.

Growth in real estate services slowed to 2 percent year-on-year in the fourth quarter from 4.1 percent a quarter earlier, as government tightening measures to curb speculation and skyrocketing prices subdued overall demand. The sector contributed 6.4 percent to GDP in the quarter.

The retail and wholesale sector slowed to 5.5 percent from 6.2 percent as consumption of physical goods lost momentum. Auto sales in the world’s biggest car market shrank for the first time in 2018 since the 1990s.

Though retail sales growth picked up marginally in December to 8.2 percent, the consumer strength gauge is around the weakest in 15 years.

“With consumer confidence now trending down and the labor market set to weaken further, we think households will turn even more cautious in the coming months, weighing on service sector growth,” Capital Economics wrote in a note on Tuesday after the data release.

Having been a stellar performer benefiting from supportive policies, the tech sector still grew at double-digit rate but growth slowed to 29.1 percent in the fourth quarter compared with 32.8 percent in the third. It accounted for about 3 percent of GDP in the fourth quarter.

As fears for a sharp slowdown mounted amid uncertainties over whether the trade war will be brought to an end any time soon, Beijing has been drumming the message that it has plenty of room to deploy measures to spur economic growth.

Finance was one of the few bright spots in the service sector due to recent government stimulus measures to keep liquidity ample.

Construction enjoyed a strong recovery due to support for infrastructure projects, as the government front-loaded local government bond issuance to support their financing.

The sector—accounting for 8 percent of the economy—grew 6.1 percent in the fourth quarter, accelerating from the previous quarter’s 2.5 percent growth.

But in a surprising remark, Fang Xinghai, vice-chairman of China’s Securities Regulatory Commission, told a seminar in Davos that he expected economic growth to slow to 6 percent this year from 6.6 percent in 2018, stressing China’s slowdown won’t be a “disaster.”

($1 = 6.8014 Chinese yuan renminbi)

By Yawen Chen & Ryan Woo

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