China growth slows to 7.5% in April-June

July 15, 2013
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While the figure is in line with a median forecast of 10 economists by AFP, it follows a series of weak numbers pointing to trouble in the Asian giant and fuels concerns it could miss the government's 2013 growth target/FILE
While the figure is in line with a median forecast of 10 economists by AFP, it follows a series of weak numbers pointing to trouble in the Asian giant and fuels concerns it could miss the government’s 2013 growth target/FILE
BEIJING, Jul 15 – China’s gross domestic product expanded 7.5 percent in the April-June quarter, official data showed Monday, a second consecutive slowdown in growth as worries mount over the health of the world’s number two economy.

While the figure is in line with a median forecast of 10 economists by AFP, it follows a series of weak numbers pointing to trouble in the Asian giant and fuels concerns it could miss the government’s 2013 growth target.

Growth in the first six months of the year came in at 7.6 percent, the National Bureau of Statistics (NBS) said. A spokesman added the performance in that period was “generally stable” and within expectations. “However we are still faced with grim and complicated economic situations,” he added.

Growth in the first three months of the year was 7.7 percent, a decrease from the 7.9 percent recorded in the last quarter of 2012.

This year’s figures have so far proved disappointing after the 7.8 percent seen in 2012, itself the worst in 13 years.

“As of now, China’s GDP has been staying under eight percent for five straight quarters, a clear sign of distress,” economist Ren Xianfang of IHS Global Insight said.

“The rather sharp growth deceleration and the recent financial market turmoil indicate that risks have been building on both the financial and real goods sector,” she added.

Comments last week by China’s finance minister raised questions about whether its 2013 target of 7.5 percent can be achieved.

“Our expected GDP growth rate this year is seven percent,” Lou Jiwei told reporters on the sidelines of an annual strategic and economic dialogue between China and the United States in Washington on Thursday.

“Of course, it won’t be a big problem for us if we achieve growth of seven percent or 6.5 percent.”

Adding to uncertainty are worries about China’s financial system, which was rocked last month when the interest rates banks charge each other surged to record highs.

“As of now, China’s GDP has been staying under eight percent for five straight quarters, a clear sign of distress,” economist Ren Xianfang of IHS Global Insight said.

“The liquidity crunch has exposed the extreme vulnerability of the financial system linked with excessive leveraging through shadow banking; while the GDP data indicate the economy is facing the risk of slowing to a stalling speed,” Ren added.

China’s leaders have proclaimed a long-term goal of rebalancing the economy, and since coming to power as Communist Party chief in November and then state president in March, Xi Jinping has placed less emphasis on the traditional growth drivers of exports and investment, and more on consumer spending.

NBS spokesman Sheng Laiyuan blamed the latest slowdown on China’s “declining potential productivity”, which he said meant the same investment could no longer generate the same returns as in the past.

Speaking to reporters, he also cited “the international environment that remained complicated and severe”, an apparent reference to weak economic conditions abroad, including Europe which is in recession and struggling with a debt crisis.

The slower rate was also a result of measures taken by the new leadership, which “attaches particular importance on restructuring and retooling the economy”, he added.

Lu Ting, Hong Kong-based economist with Bank of America Merrill Lynch, told AFP that while the second-quarter figure was in line with expectations, it could prompt authorities to take a more active hand.

“The government may need to relax on the policy front if it wants to maintain its full-year economic growth target of 7.5 percent,” he added.

Markets welcomed the statistics, with the Shanghai Composite Index up 1.46 percent in the morning.

Also Monday, the NBS announced that retail sales rose 13.3 percent year-on-year in June and 12.7 percent during the first half.

Industrial production, meanwhile, rose 8.9 percent year-on-year in June and 9.3 percent for the first six months of 2013.

And fixed asset investment, a key measure of government spending on infrastructure, increased 20.1 percent during the first half year-on-year.

“Export manufacturers are feeling the pinch from sluggish global demand,” Matthew Circosta, economist at Moody’s Analytics, said in a report.

“The government is also focusing on reforming the economy, which includes the closure of overcapacity in sectors such as steel,” he added.

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