China's GDP grew at its weakest pace for 18 months in the March quarter, data showed on Wednesday, testing Beijing's resolve as its campaign to transform the world's number-two economy comes at the cost of a sharp slowdown.
Analysts said that while China's leaders will not likely react to the news with any significant measures to boost the economy for now, they suggested that further weakening could tip their hand.
Gross domestic product grew 7.4 percent on year in the first three months of 2014, well down from the 7.7 percent in October-December. The National Bureau of Statistics (NBS) blamed the figures on a slower-than-expected global recovery as well as economic structural reforms at home.
The result was the worst since a similar 7.4 percent expansion in the third quarter of 2012, but marginally higher than a median forecast of 7.3 percent in a survey of 13 economists by AFP.
It marks the fourth slowdown in the past six quarters and comes as Beijing shows a willingness to accept weaker growth, as leaders try to pivot the economy away from decades of double-digit expansion fuelled by big-ticket investment projects.
NBS spokesman Sheng Laiyun told reporters China is in the "crucial stage of structural reform", while government efforts to get rid of outdated industrial capacity, conserve energy and protect the environment "come at a price".
- 'Policy response likely to be muted' -
Julian Evans-Pritchard, China economist at Capital Economics, wrote in an analysis Premier "Li Keqiang presumably already had a good idea of where Q1 growth would come in when he ruled out major stimulus last week".
He added: "Meanwhile, today's figures show that wage growth continues to outstrip output growth, suggesting that the labour market, now policymakers' primary concern, remains healthy.
"As a result, the policy response to today's numbers is likely to be muted."
Authorities say they want consumer spending and other forms of private demand to propel the economy into a future of more sound and sustainable growth, though they are quick to emphasise that rebalancing must not come at the expense of job creation.
The government "must fortify confidence to promote reform", Sheng vowed.
China's "external environment remains complicated and volatile, and the national economy still faces downward pressure", he said.
But he stressed the number of new urban jobs created in the first quarter was 3.44 million, 40,000 more than the same period in 2013.
The government last month announced a target of creating 10 million new city jobs this year.
"The more important (indicators) by which we judge whether the growth rate has slipped below the targeted range... are employment and income," he said.
Li last week poured cold water on measures to boost growth, saying authorities "will not resort to short-term stimulus policies just because of temporary economic fluctuations".
Rather, he said they "will pay more attention to sound development in the medium- and long-run".
China in March set its annual growth target for this year at about 7.5 percent, the same as last year, though officials, including Li, have been quick to stress the target is flexible -- seen as a hint it may not be reached.
The last time China missed the target was in 1998 during the Asian financial crisis.
- Positive factors at play now -
The economy grew 7.7 percent in 2013, the same as 2012 -- the worst pace since 7.6 percent in 1999.
For the full-year 2014, the median forecast in the AFP survey was for expansion of 7.4 percent.
The NBS also said industrial production, a measure output at factories, workshops and mines, rose 8.8 percent year-on-year in March, from a combined January-February figure of 8.6 percent. Retail sales, a key indicator of consumer spending, increased 12.2 percent in the same month, the NBS said, accelerating from 11.8 percent in January-February.
China announced combined statistics for January and February due to the country's Lunar New year holiday week, which fell in both months.
Fixed asset investment, a measure of government spending on infrastructure, rose 17.6 percent on-year in the first three months of this year from the same period last year.
Liu Li-Gang, Hong Kong-based economist for ANZ Bank, said the figure was no surprise and there were some positive factors at play now.
"We think the Chinese economy will likely rebound in the second quarter due to seasonal factors -- like (the fact that) the number of newly started projects always peaks in June," he told AFP.
"But whether the rebound can be sustained depends on whether China will relax its monetary policy," he added.
"We think the central bank may continue with its current monetary policy and only relax it by cutting (the amount of cash banks must keep in reserve) if the economy shows signs of further slowdown in the third quarter."