China’s Economic Growth Slowest in Nearly 3 Years

China’s growth slowed more than forecast last quarter as exports and domestic demand cooled, boosting pressure on Premier Wen Jiabao to loosen policy further and shore up expansion in the world’s second-biggest economy.

Gross domestic product expanded 8.1 percent from a year earlier, the least in almost three years, after an 8.9 percent gain in the fourth quarter, the National Bureau of Statistics said in Beijing Friday. The median estimate in a Bloomberg News survey of 41 economists was 8.4 percent. Industrial production rose at a faster pace in March while retail sales growth accelerated, the data showed.

An unexpected surge last month in new yuan loans reported Thursday shows the ruling Communist Party is trying to avoid a deeper growth slide this year amid a once-a-decade power transfer to younger leaders. A China slowdown may add to concerns that global expansion is losing steam after job gains in the U.S. lagged forecasts and Europe’s sovereign-debt crisis threatened to worsen.

“Policy makers will still be focused on stabilizing economic growth and avoiding an excessive downturn in the months ahead,” Shen Jianguang, chief Asia economist for Mizuho Securities Asia Ltd. in Hong Kong, said before today’s release. “They will have to rely on further policy measures to support the expansion.”

The Shanghai Composite Index pared gains following the report, rising 0.1 percent as of 10:07 a.m. local time after advancing as much as 0.5 percent.

Boosting Demand

The government may take steps to boost domestic demand through encouraging investment, and the central bank may lower banks’ required-reserves ratio this month, said Shen, who previously worked for the International Monetary Fund and European Central Bank. The economy may expand 8.4 percent in the second quarter, Shen said.

Data Thursday showed new yuan lending was the highest in a year and money-supply growth quickened in March. Local-currency-denominated loans were 1.01 trillion yuan ($160.1 billion) in March, the People’s Bank of China said, exceeding all 28 estimates in a Bloomberg News survey.

The benchmark Shanghai Composite Index of stocks has advanced 6.9 percent this year through Thursday, compared with 8.9 percent for the MSCI Asia Pacific Index.

Wen in March pared this year’s economic-growth target to 7.5 percent, the lowest since 2004, as the government seeks to cut reliance on exports and capital spending and make expansion more sustainable.

At the same time, economists at Deutsche Bank AG, Nomura Holdings Inc. and Morgan Stanley last month raised their China growth forecasts for 2012 partly on anticipation of policy loosening.

Fine-Tuning Policies

Wen has said economic policies will be fine-tuned as needed even as he prolongs a campaign to curb property prices and speculation. During a visit to Fujian and Guangxi provinces April 1 to 3, the premier pledged to push ahead on key investment projects, accelerate export tax-rebate payments and ensure “reasonable” liquidity.

The government has also slowed gains in the yuan to help cushion exporters against sluggish demand from developed countries. The currency has weakened against the U.S. dollar by 0.2 percent this year after a 4.7 percent rise in 2011.

Industrial production increased 11.9 percent in March from a year earlier, today’s statistics bureau report showed. That compared with an 11.6 percent median estimate in the Bloomberg News survey and an 11.4 percent gain in January and February combined.

Retail sales advanced 15.2 percent in March, the statistics bureau report showed, close to the median estimate of 15.1 percent. China’s passenger-car sales grew 4.5 percent in March, beating analyst estimates, as dealerships increased discounts to attract buyers amid record fuel prices, a separate report showed on April 11.

Investment Increases

Fixed-asset investment excluding rural households rose 20.9 percent in the first quarter, compared with the 21 percent median estimate of economists.

“Growth may bottom out this quarter, assuming the global recovery improves and the domestic policy easing feeds into the economy,” Chang Jian, an economist with Barclays Capital in Hong Kong who previously worked for the World Bank, said before the release.

China has lowered banks’ required-reserve ratio twice since November to boost liquidity and spur loan growth. At the same time, authorities have refrained from cutting interest rates amid inflation concerns.

The central bank may lower the ratio, currently 20.5 percent for large lenders, by another 100 basis points this quarter after two cuts since November, according to the median forecast in a Bloomberg survey last month. Seven out of 20 economists expect a cut in the benchmark lending rate, which has stood at 6.56 percent since the last increase in July.

Inflation Below Target

Inflation, which rebounded to 3.6 percent last month, may stay below the government’s 4 percent target this year and “should not be the main hindrance for policy easing,” Ding Shuang, a Hong Kong-based economist at Citigroup Inc. who previously worked at the IMF, said before the release.

A moderating expansion could drag down growth in commodity- exporting nations including Australia, whose economy grew at half the pace economists forecast in the fourth quarter. It may also weigh on sales of foreign companies such as Bayerische Motoren Werke AG, the world’s largest luxury automaker, which delivered more cars in China than in the U.S. for the first time last quarter.

Zoomlion Heavy Industry Science & Technology Co., China’s biggest crane-maker, and Sany Group Co., owner of the nation’s largest construction-equipment maker, both said last month that their sales growth may slow this year as the economy decelerates.