From rail to retail, growth slows as housing peaks

Electricity output growth slowed to an average of 4 percent in January through October, less than half the pace of the previous five years. Freight traffic volume on the nation's rail network slumped 7.5 percent in October from a year earlier, the 10th straight decline, the longest losing streak since the 2008-09 global slowdown. Fewer coal shipments accounted for much of the drop.

"There has been a slowdown in industry and industries have been a big consumer of coal," said Wei Jiangping, a market manager at coal producer Inner Mongolia Yuan Xing Energy Co. "It's all related. The property industry slows, and that leads to a slowing of demand from the cement and glass industries."

Rosealea Yao, an analyst at Gavekal Dragonomics in Beijing, said real estate and construction's contribution to GDP will probably slide to 28 or 29 percent by the end of the decade from about 33 percent this year and more than 34 percent in 2011.

It will take as many as six years for excess land supply to be digested in third-and fourth-tier cities, four years in second-tier and two years in first-tier cities, Nomura said.

Even a leveling off of property investment will drag on growth and construction-related commodities including steel, copper and cement, said Patrick Chovanec, chief strategist at Silvercrest Asset Management Group LLC in New York.

"You don't have to have a big crash to have a big impact on the growth rate," said Chovanec, a former associate professor at Beijing-based Tsinghua University. "If you just build the same number of condos and villas and apartments that you did last year but no more, then it's not a contributor to GDP growth."

Industries making up China's "new" economy, including private enterprise output, vehicle exports, clean energy production, communication equipment and computer output, are faring better, though not accelerating quickly enough to prevent the economy's slowdown.

Bloomberg's China Real Activity Index for such new drivers expanded 11.9 percent in October from a year earlier, while a gauge of the "old" forces including real estate investment, ferrous-metal ore production and output of State-owned enterprises expanded 5.3 percent, the slowest since May 2009.

While retail sales data point to a slowdown, e-commerce is booming, with online sales rising 18 percent in the third quarter, according to Shanghai-based iResearch Consulting Group. Online shopping surged 50 percent from a year earlier, led by Alibaba Group Holding Ltd's Tmall with a 58 percent share, while travel sales jumped 20 percent.

Because service industries, which replaced manufacturing and construction as the biggest part of the economy last year, require about 30 percent more jobs per unit of GDP than industry, the nation's economic growth rate can slow while still providing ample employment, said Stephen Roach, former chief economist at Morgan Stanley.

"Most people around the world are very negative on China because they see GDP growth slowing," said Roach, a senior fellow at Yale University's Jackson Institute of Global Affairs and author of Unbalanced, which explores the links between China and the US.

"China is shifting its economic growth into more labor-intensive services industries and that's a big deal. It doesn't matter if GDP growth is slowing so long as employment growth is increasing, and it is."

Roach said slower GDP growth accompanied by services-creating structural changes will be good for China.