July 16, 2013 in Business

China’s economic growth slows further

Joe Mcdonald Associated Press
 
Associated Press photo

A vendor takes a nap on an electric bike at his shop in Beijing on July 1.
(Full-size photo)

Fast facts

The numbers: China’s economy grew 7.5 percent from a year ago in the three months through June, down from the previous quarter’s 7.7 percent growth rate and the lowest level since 1991.

Potential roadblock: Weak trade and the government’s efforts to cool a credit boom are crimping growth. Analysts say growth could fall further, pressuring China’s leaders.

Beyond China: A decline in Chinese economic activity could have global repercussions, denting revenues for suppliers of commodities and industrial components.

Associated Press

BEIJING – China’s leaders face new pressure to stimulate a slowing economy after growth fell to its lowest since 1991, hurt by weak trade and efforts to cool a credit boom.

The world’s second-largest economy expanded 7.5 percent over a year earlier in the three months ending in June, down from the previous quarter’s 7.7 percent, data showed Monday. Growth in factory production, investment and other indicators weakened.

The fifth straight quarter of growth below 8 percent is “a clear sign of distress,” IHS Global Insight analyst Xianfang Ren said in a report. With investment weak, she said, the economy might be “at risk of stalling.”

Analysts said growth could fall further, adding to pressure on communist leaders who took power last year. They 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 launch new stimulus to hit their 7.5 percent growth target for the year, Credit Agricole CIB economist Dariusz Kowalczyk said. 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 see some targeted measures to stimulate growth,” Kowalczyk said. “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 Southeast Asia. Lower Chinese demand already has depressed prices for iron ore and other raw materials.

A stimulus would temporarily set back Beijing’s reform plans by reinforcing reliance on investment to generate jobs.

Despite the slowdown, communist leaders have expressed determination to stick to their plans, which would impose short-term pain in exchange for sustained, stable growth later.

“Major indicators are within our targeted range but we face a complex situation,” said a spokesman for the statistics bureau, Sheng Laiyuan, at a news conference.

Sheng 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 percent 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 percent.

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

The International Monetary Fund last week cut its 2013 growth forecast for China to 7.8 percent from its 8.1 percent outlook in April. The IMF’s forecast for 2014 was cut to 7.7 percent from 8.3 percent. The Fund’s chief economist, Olivier Blanchard, said China was the country at the greatest risk of a “large decrease in growth.”

On Monday, Nomura economist Zhiwei Zhang cut his growth forecast for 2014 to 6.9 percent from 7.5 percent and said growth was likely to bottom out at 6.5 percent in the second quarter of next year. He said he expects Chinese leaders to cut their growth target for next year to 7 percent from 7.5 percent.

“The new leaders made it pretty clear that they care more about the quality and sustainability of GDP growth rather than the speed of it,” Zhang told reporters in a conference call.

Retail sales are growing but more slowly than Chinese leaders want. Growth decelerated to 12.7 percent for the first quarter, declining by 1.7 percentage points from a year earlier.

“I think it is unrealistic to expect consumption to go up and fill the gap left by less investment,” said Nomura’s Zhang.

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.

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