China economic growth slows to 7.6% in second quarter

Chart showing Chinese GDP

New $175m mail centre shows companies still see China as an opportunity

China's economy has grown at its slowest pace in three years as investment slowed and demand fell in key markets such as the US and Europe.

Gross domestic product rose by 7.6% in the second quarter, compared with the same period a year ago. That is down from 8.1% in the previous three months.

In March, Beijing cut its growth target for the whole of 2012 to 7.5%.

China accounts for about a fifth of the world's total economic output and any slowdown may hamper a global recovery.

At the same time, many of Asia's biggest and emerging economies are becoming increasingly reliant on China as a trading partner.

"China has been a big factor for the slowdown in Asia this year," said Tai Hui from Standard Chartered Bank in Singapore.

He added that if China's growth does not pick up in the second half of the year then "that's going to mean a very difficult second half for a lot of the manufacturers in this region".

Spurring growth


As the world's largest exporter, China is being hard hit by the slowdown in Europe and elsewhere.

These are the country's worst figures since the start of the global financial crisis.

China's leaders are pinning their hopes on investment - especially in state companies - to drive growth in the world's second largest economy.

In recent weeks, they've twice cut interest rates to bolster lending. The authorities are also pumping money into public works - such as social housing. Fuel prices have also been reduced.

Many economists believe these measures will ensure that China's growth rebounds in the coming months.

But with a once-in-a-decade leadership change starting later this year - this is a sensitive time in Chinese politics. China's leaders will be deeply concerned that any further slowdown could lead to rising social unrest.

However, despite Friday's slower growth figures many analysts tried to allay fears of a so-called hard landing in China's economy and its subsequent impact on the rest of the world.

"If you get a drop in the growth rate of 1 percentage point per annum, that's not a lot in terms of the world gross domestic product," Edmund Phelps, a professor of political economy at Columbia University and a Nobel prize winner, told the BBC.

He added that China had a lot of ammunition to counter the slowdown, some of which it has already started using because of the patchy recovery in the US, and the ongoing debt and economic issues in the eurozone.

China's central bank has cut the amount of money banks must keep in reserve in order to boost lending, and it recently cut the cost of borrowing twice in one month.

Earlier this week, Premier Wen Jiabao said that boosting investment would also be crucial for stabilising growth, fuelling expectation that more state-driven stimulus measures would be on the way.

"Now that China's growth is slowing, there are calls for yet another stimulus," said Edward Chancellor, global Strategist at investment management firm GMO.


But analysts warned that China's growth problems may not be solved by a simple injection of capital and a new round of government spending. Especially as many of today's issues can be traced back to the way the country tried to kick start growth after the global financial crisis in 2008-2009.

Michael Pettis, Professor of Finance, Peking University: China has been "massively over-investing"

At the time the central government began pumping huge amounts of money into the economy, mainly on infrastructure and construction spending.

This led to excess capacity, a surge in property prices and an increase in consumer costs and inflation.

Faced with these problems and amid fears that the economy may be overheating, policy makers decided to implement measures to curb lending and slow inflation.

Those steps, along with a drop in demand for Chinese goods from key markets such as Europe and the US, have caused the most recent cycle of slowing growth.

Start Quote

Credit works on an economy like steroids on the body of an athlete: you need ever larger injections to maintain the effect”

End Quote Edward Chanceloor Global strategist at GMO, an investment management firm

In 2011, China's economy grew by 9.2%, down from 2010's figure of 10.4% growth.

Domestic economy

But while the longer-term trend is of a slowdown, China also released a number of other figures on Friday and they painted a more nuanced and mixed picture of the economy.

According to the official figures, retail sales increased by 13.7% in June, little changed from May's 13.8% figure.

At the same time, electricity output, an indicator that many analysts use to calculate current business and consumer activity, was also flat in June at 393bn kilowatt-hours.

Optimists, however, would have been buoyed by news that new bank loans increased to $144.4bn in June, up from $124.4bn in May.

The BBC's John Sudworth in Shanghai says the data will do nothing to stop the economic squabbling over whether China is heading for a hard or soft landing.

"Rising stock piles of coal paint a vivid picture of just the kind of indicator the bears will use when arguing that 7.6% is proof of the impending economic catastrophe," he says.

"But here's another picture for you. A new DHL delivery hub built on the outskirts of Shanghai shows that there are still plenty of bulls out there too.

"For them 7.6% is probably a turning point and they also have their indicators of choice to support the case."


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  • rate this

    Comment number 167.

    7.6%? Oh, what a respite for us in the west!

  • rate this

    Comment number 166.

    What worries me is what happens when the Chinese people start saying we want more money? With the combination of oil prices going up. What's the west going to do as we are dependent on them? What happens to consumerism?
    Infinite growth and infinite consumerism is not sustainable.
    Sooner or later we need to move to a more planned, resource driven economy.

  • rate this

    Comment number 165.

    "35.Matt Marshall
    2 Hours ago
    I’d like to see us buying far more UK manufactured goods."

    If we actually manufactured anything we wouldn't be in the mess we're in now!

  • rate this

    Comment number 164.

    As China's workforce gets more educated it will get the same materialistic aspirations as that of any other technologically advanced nation. It happened here in the forties, it happened in Japan in the seventies and it will happen in China. They won't be the ones to suffer, WE will, because successive governments have decimated our manufacturing ability way past the point of no return.

  • rate this

    Comment number 163.

    China is a big country, it has such a big population, and it also has big influence on this world. What should be done is not complaining what is happening in this world, but to go and learn what China is like and have communications with it. Hopefully something very different and useful would be found!

  • rate this

    Comment number 162.

    Not just electronics....
    I can't believe seeing mushrooms in my local supermarket that were grown in China and then airfreighted here for my delectation. The world is indeed a crazy place.
    British and Irish mushrooms taste great. Try them!

  • rate this

    Comment number 161.

    China is the worlds last totalitarian Behemothic empire at some stage like all large empires it will break up. It is currently held together by a combine of dictatorship and rapid economic growth. If the growth goes slows further social urest will occur already happening in Tibet and East Turkestan, so price that one into your investments.

  • rate this

    Comment number 160.

    I can't help that, with posters referring to 'cheap tat' we are dealing with out-dated stereotypes; rather like with 'Made in Taiwan' 20 or 30 years ago.

    I suggest some may need to google 'Chongqing', or look at the city-scape half way down that page on wiki. That is what we are talking about here, not just illiterate farmers out of the paddy-fields and straight into the sweatshop factories.

  • rate this

    Comment number 159.

    2 Minutes ago

    China is a fake super power.

    But they are not a bankrupt super power involved in worldwide destabilisation, regime change, oil wars, and international western driven financial fraud on an industrial scale, or had your 20/20 vision missed all that!

  • rate this

    Comment number 158.

    I can see one of two things happening, either there's going to be a major change in China, or it's going to be a non-event. The CCP is long outdated in China now, and the country is crying out for political change. This needs to happen or their economic miracle will be for nothing.

  • rate this

    Comment number 157.

    China wants to boost growth, so it reduces restrictions on banks and gives them a load of money to invest wherever they want. Wow, that didnt take long for memories to fade.

  • rate this

    Comment number 156.

    Do you think the penny has finally dropped, if you bring about a downturn un the economy of your markets this will lead to a downturn in your sales... Duh!

  • rate this

    Comment number 155.

    wow my comment voted down for stating FACT, china has grown stronger due to manufacturing moving to that country haha users are extreamly uneducated. No wonder people don't bother to comment ere anymore.

  • rate this

    Comment number 154.

    Like few people pointed out China works for us. What worries me is what happens when the Chinese people start saying we want more money? With the combination of oil prices going up. What's the west going to do as we are dependent on them? What happens to consumerism?

  • rate this

    Comment number 153.

    Given China's appauling human rights record, which certainly involves people in manufacturing, I do all I can to avoid buying anything made in China. If only people would think about the consequences of their actions...

    "Open your eyes - DON'T believe the lies."

  • Comment number 152.

    All this user's posts have been removed.Why?

  • rate this

    Comment number 151.

    @127 'thelostdot'
    You have chosen to call me ignorant. Well, I won't take that personally. However, if that means when I post on international issues and the bigger picture that affects ordinary people, globally, then why would that make me ignorant?

    As for propaganda on this site - it's rife everywhere. Join up the dots 'thelostdot' and keep an open mind. The financial tide ebbs and flows.

  • rate this

    Comment number 150.

    I love it the West's failed economists, bankers and politicians all quick to advise China. Keep your mouths shut guys you haven't managed to get anything right yet. You will I suppose next be telling China they need "austerity" QE, less controls, bankers bonuses, wage freezes and cut backs in services. Best advice to the West, mind your own business & stop funding wars.

  • rate this

    Comment number 149.

    That's why Apple get its products manufactured in china, it's cheap labour and low regulations. Same as any other company. It makes monetary sense to get things built in China. It means low cost of production & high profit margins. This system only benefits the rich as the rest of us need work. But we don't want to work like the Chinese people but we are all addicted to this life style.

  • rate this

    Comment number 148.

    139. SurvivalOfTheFickest
    I earn above average pay and own neither a Plasma T.V. or an ipad,, went to University as a mature student and have never claimed a benefit in my life.

    Doesn't mean to say I think its OK to work 15 hours a day in a sweatshop for a pittance.


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