Concerns raised as China's economic growth slows to 7.5%

 

China's economic growth slowed for a second consecutive quarter, piling pressure on leaders to stimulate a slowing economy hurt by weak trade and efforts to cool a credit boom.

The world's second-largest economy grew by 7.5 per cent compared to the previous year in the three months ending in June, down from the previous quarter's 7.7 per cent, data showed today. Growth in factory output, investment and other indicators weakened.

The latest figures were in line with analyst expectations. They predict growth could fall further in the current quarter, adding to pressure on communist leaders who took power last year and are trying to shift China from reliance on exports and investment to slower, more sustainable growth based on domestic consumption.

Chinese leaders are likely to respond by launching new stimulus to make sure growth hits their target for this year of 7.5 per cent, said Credit Agricole CIB economist Dariusz Kowalczyk.

He said that might include weakening the Chinese currency to spur exports or pumping money into the economy through higher public works spending.

"We will seem some targeted measures to stimulate growth," said Mr Kowalczyk. "They have to do something. Otherwise they will miss their target. And they cannot afford that, because this is their first year in power."

A decline in Chinese economic activity could have global repercussions, denting revenues for suppliers of commodities and industrial components such as Australia, Brazil and south-east Asia. Lower Chinese demand has already depressed prices for iron ore and other raw materials.

Despite the slowdown, communist leaders have expressed determination to stick to plans aimed at nurturing slower and more sustainable growth.

"Major indicators are within our targeted range but we face a complex situation," said a spokesman for the statistics bureau, Sheng Laiyuan.

He said the government's goal is to "promote restructuring" and make more of the "driving force" of the market.

Growth in factory output slowed to 9.3 per cenet for the first half of the year, down 0.2 percentage points from the first quarter's rate, the statistics bureau reported.

Growth in investment in factories and other fixed assets in the first half declined by 0.8 percentage points to 20.1 per cent. Retail sales in the first half rose 12.7 per cent but that was down 1.7 percentage points from a year earlier.

"Further deceleration is possible if reforms and stimulus measures are delayed," said Alaistair Chan of Moody's Analytics in a report.

Chinese leaders have promised to launch reforms aimed at making the economy more productive and helping entrepreneurs but no major changes are expected until after a Communist Party meeting in the autumn.

Growth has also been dented by a crackdown on overly fast growth in bank lending. Government efforts to tighten lending controls caused a temporary shortage of credit in Chinese financial markets last month.

Further efforts to rein in lending, especially unregulated private lending, could hurt entrepreneurs who generate most of the country's new jobs and wealth.

The ruling party's 7.5 per cent growth target for the year is stronger than forecasts for the US, Europe and Japan, but China's weakest performance since 1991.

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