Growth to drop below 7% in first quarter: economist

Sluggish property market, land sales blamed

China's economic growth is expected to fall below the 7 percent level in the first quarter of the year, partly because of the sagging property market and a decline in land sales revenue, an economist said Monday.

GDP growth will be 6.8 percent in the first quarter of the year, but will rebound back to above 7 percent in the second half due to policy easing, Zhang Zhiwei, chief China economist at Deutsche Bank, said at a press conference in Beijing on Monday.

The downward trend in economic growth in the first quarter is partly due to a sharp slowdown in growth of fiscal revenue, which may grow by only 1 percent in 2015 - the slowest pace since 1981 - and could even fall into negative territory in the first half, according to Zhang.

According Zhang, as property and infrastructure investment are two pillars of the economy, growth will be dragged down by slowing property investment and a decline in revenue from land sales.

Local governments have long relied on land sales for fiscal revenue. The country has yet to announce the total amount of fiscal revenue and land sales for 2014.

According to official data, the nation's land sales revenue has grown more than 30 times over since 2001, reaching 4.1 trillion yuan ($661 billion) in 2013.

The country's fiscal revenue reached 12.95 trillion yuan in the first 11 months in 2014, compared with a total of 12.91 trillion yuan in 2013. The ratio of land sales accounted for more than 30 percent of the country's total fiscal revenue in 2013.

"The financial sector has been cautious in lending money to property developers," Zhang Bin, director of the Global Macroeconomy Research Division under the Chinese Academy of Social Sciences (CASS), told the Global Times on Monday.

As a result, many of the developers will "face bankruptcy in 2015," he said.

"With the property market remaining weak and revenue from land sales falling, it is inevitable that fiscal revenue growth will slow down in 2015," he noted.

The government needs to continue to advance structural reforms in order to move on from the growth model that is based on land sales revenue, Deutsche Bank's Zhang said.

These reforms include improving the tax structure, expanding the sources of local fiscal revenue and raising resource taxes, he noted.

China's economic growth slipped to 7.3 percent year-on-year in the third quarter and the full-year growth is expected to undershoot the government's 7.5 percent target.

The latest official data showed that the producer price index, which measures price changes at the wholesale level, dropped 3.3 percent year-on-year in December, marking the 34th consecutive monthly decline.

"The driving force for growth is still weak in 2015. Due to a mismatch between supply and demand, some industrial sectors are suffering from overcapacity, while in other sectors supply is insufficient to meet demand," said Zhang from the CASS.

"But instead of worrying about the slowing GDP growth, the country should put more emphasis on improving the structure of GDP to allow the services sector to play a greater role in order to create more jobs," he said.

The services sector accounted for 46.7 percent of China's GDP in the first three quarters of 2014, up 1.2 percentage points from a year earlier and 2.5 percentage points higher than that of the industrial sector.

In 2013, the services sector outperformed the industrial sector for the first time to become the biggest contributor to the country's GDP growth.