3rd LD-Writethru-Xinhua Insight: China growth dips, more supply-side reforms signaled

China's economy recorded the slowest annual expansion in a quarter of a century in 2015 as authorities signaled more supply-side structural reforms for long-term growth.

The economy grew 6.9 percent year on year in 2015, in line with the official target of around 7 percent for the year, according to data from the National Bureau of Statistics (NBS) on Tuesday.

Growth in the fourth quarter (Q4) came in at 6.8 percent year on year, the lowest quarterly rate since the global financial crisis, the data showed.

Gross domestic product (GDP) was 67.67 trillion yuan (about 10.3 trillion U.S. dollars) in 2015, with the service sector accounting for 50.5 percent, the first time this has exceeded 50 percent.

The economy still "ran within a reasonable range" in 2015, with its structure further optimized, upgrading accelerated, new growth drivers strengthened and people's lives improved, NBS chief Wang Baoan told a press conference.

However, the country "faces a daunting task in deepening reforms on all fronts" and needs to step up supply-side structural reforms, he said.

Major economic indicators softened in 2015, with industrial output growth slowing to 6.1 percent year on year from 8.3 percent in 2014, NBS figures showed.

Urban fixed-asset investment continued to cool, expanding 10 percent year on year, compared with 15.7 percent in 2014. Retail sales rose 10.7 percent, down from 12 percent registered in 2014. Foreign trade ended 2015 with its first annual contraction in six years.

Sagging global trade, rising financial risks and changing domestic market conditions were among the factors affecting the economy, Wang said.

He also mentioned the ailing property sector and stock market fluctuations but said their impact on the economy was either limited or yet to be evaluated.

Wang dismissed concerns over government debts, noting that they accounted for less than 40 percent of the country's GDP, well below the internationally accepted alert line of 60 percent.

Thanks to substantial foreign exchange (forex) reserves, a depreciating yuan will not affect the economy much, either, he said, adding that the depreciation will not be sustained as the growth outlook remains positive.

BRIGHT SIDE

Viewed against an international backdrop, growth of 6.9 percent was "not a low rate" and outshone other global economies, Wang said, defending it as a hard-won achievement.

Though slowing, China still contributed to more than 25 percent of global economic growth, he said.

Employment remained stable, with the surveyed unemployment rate in major cities standing around 5.1 percent. Residents' income also continued to increase steadily, Wang noted.

While old engines in China's economy -- investment and trade -- lost steam, services and consumption took the reins.

The service sector accounted for over half of tax revenues in 2015 and contributed 80 percent to the overall tax growth.

End-user consumption, including resident and government spending, contributed 66.4 percent to the national GDP growth in 2015, up 15.4 percentage points from 2014, the NBS data showed.

"The growth picture remains two-sided," said Louis Kuijs of Oxford Economics in a report.

The real estate construction slump and weak exports continued to weigh on activity and prices in industry, but consumption continued to expand robustly, supported by solid wage growth, he said.

While expecting some sectors to weaken further this year as authorities advance reforms to cut overcapacity and reduce costs, Wang was confident that China could attain steady growth in 2016, pointing to the thriving emerging industries and new business models.

Online retail sales surged 31.6 percent in 2015, well above the total retail sale growth, he told reporters. Sales of new energy vehicles soared by more than 160 percent, while the output growth for the high-tech industry reached 10.2 percent, 4.1 percentage points higher than the overall industrial output.

China's efforts to make the economy greener and more productive also began to bear fruit, with energy consumption per unit of GDP falling 5.6 percent and overall labor productivity, measured by output per worker, rising 4,733 yuan last year, Wang said.

While monthly data revealed the economy is slowing it is not heading to a meltdown, economists believe.

"Notwithstanding the recent equity market turmoil, there are no signs of a more drastic slowdown than we expected previously," Kuijs said, citing flat investment growth, weaker industrial output but stronger real retail sales in December.

CALL FOR REFORM

To avoid a hard-landing, authorities need to take more decisive measures in monetary easing and fiscal expansion and, more importantly, in pressing on with reforms, analysts said.

The Chinese leadership has been sober in its handling of the economic slowdown, averting massive stimulus and resorting to reforms to boost innovation, eliminate overcapacity and reduce corporate costs.

With government support and streamlined administrative approvals, China saw the number of companies registered in 2015 rise by a daily average of 12,000, said Wang.

"This government has not done too much stimulus," Wang told reporters, citing much milder increases in money supply, debt levels and other indicators in 2015 compared with in 2008, when the global financial crisis hit China.

Instead of pouring massive funds into investment to bolster short-term growth, the authorities put more focus on long-term, sustainable growth.

As the economy expands, the growth rate will moderate, its structure must be adjusted while the engines of growth must be shifted, President Xi Jinping said at a symposium on Monday.

He described the new normal of the Chinese economy as an inevitable result of development, saying the country's long-term economic fundamentals remain sound and calling for more supply-side structural reforms.

Such reforms aim to reduce noneffective and low-end supply while expanding effective and medium-to-high-end supply to boost productivity, Xi said. He highlighted the need to reduce excess capacity, promote industrial regrouping and bring down costs for enterprises.

"For the government, how to manage a soft landing and to foster new sources of growth via structural reform and counter-cyclical economic policies is a challenging task," said Zhu Haibin, J.P. Morgan China chief economist, in a note.

He expects future growth to be spurred by technological innovation, industry upgrade, economic openness, as well as new urbanization driven by land reform and household registration reform. Endi