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 227.

    Growth rates of 8-10% (much of the economic activity being infrastructure spending) will not be sustainable and China will have to learn to change its economy. Rather than China claiming it needs to have high growth to create employment, it ought to sort out its social welfare system. By providing decent healthcare and pensions they will enable people to retire, thus creating jobs for the young.

  • rate this

    Comment number 226.

    GDP is a pretty useless when it comes to measuring wealth generation. It includes elements of consumption, and can be influenced by economic pumping measures such as QE. Why economists and the media focus on it so much, I cannot understand. It is certainly not a reliable guide to national economic performance.

  • rate this

    Comment number 225.


    Typical response to a statement of fact.Why is it that the West have banking and financial problems? Because the whole system is built on greed, fraud and corruption at the highest levels. You know it, the politicians know it, the banking spivs know it. You would rather bury your head in the sand because you are part of it and support it. Capitalism has failed live with it.

  • rate this

    Comment number 224.

    Such a growth rate is simply not sustainable. Driving the world's economies based on growth is not viable. At this rate China's economy will double in size in just 9.1 years, triple in 14.4 years and quadruple in 18 years! It would be 10 times as large in only 30.3 years. Anyone with a basic scientific calculator can work that out so why do economists and journalists love growth so much?

  • rate this

    Comment number 223.

    The only people in consternation will be hedge fund managers and credit agencies - you know - that plague of locusts that constantly fly around the world and pick our bones clean while we bail them out as our pension contributions mysteriously disappear through their sharp practise/commissions.

    The only way to protect your small private pension is to take your money out of private pension funds.

  • rate this

    Comment number 222.

    I rated Hamish the Icelord; BBC, take note! And correct this!
    As for China the world recession has caught up with them because the majority of their own people on Main Street are not earning enough to be able to afford their own Chinese made products, especially electrical goods. Secondly the crash in Europe/West is hurting their exports. & other internal revenue problems are already deepening!

  • rate this

    Comment number 221.

  • rate this

    Comment number 220.

    The point here is that China has been fuelling its growth through massive urbanisation programmes, just like the West did post-1945. Just look at the city of Ordos in China.

    What happens when this explosion in urbanisation eventually fails (as it has repeatedly in the West)?

    Year on year compound growth is impossible with finite resources & finite demand. Too many still don't get this.

  • rate this

    Comment number 219.

    212. Dr Bob Matthews
    Corruption is absolutely endemic in China. It is part of their psyche. Very few people are executed for it because they pay off officials.
    I know several big factory owners who have to pay the Mob to keep things smooth and there really are Triad gangs who are like the Mafia.
    The UK is worlds apart for corruption. There is no comparison.

  • rate this

    Comment number 218.

    188 China bad human rights record fact. China invaded Tibet 1950 fact. You tell me should we be trading with countries with bad human rights records Yes or No?

  • rate this

    Comment number 217.

    Is there no end to the mess that Labour left everyone in (tongue firmly in cheek).

  • rate this

    Comment number 216.

    With a population consisting of 1.3 billion people, and the determination to export numerous goods Chinia will continue to grow at rapid rate. Any GNP growth over 4 percent is excellent. If exports slow China stll has a population which can substain growth even without exporting goods around the world. It's not a matter of if, but a matter of when China will be the largest economy.

  • rate this

    Comment number 215.

    Has any Brit been held at gun point to buy Chinese goods? If you don't like Chinese goods then don't buy them - but beware you don't in any way represent everyone else. The very fact that China has grown from a poor country to the 2nd largest economy without WAR or COLONISATION proves just how the world consumers VOTE WITH THEIR WALLET.

  • rate this

    Comment number 214.

    China sells cheap "junk" to US & EU. Cheap "junk" is bought by people that can not afford to buy expensive "junk" manufactured in US & EU.
    People that used to be able to afford cheap "junk" are broke, so they do not buy cheap "junk" from China. Guess what, their GNP falls.

  • rate this

    Comment number 213.

    209. Dragonwight

    A lot of the factories in China have very good safety levels.
    They certainly don,t pay much but then living in China is very cheap in the suburbs. Housing and food comparatively to UK is nothing.
    Cant see what this has got to do with the Tories really.

  • rate this

    Comment number 212.

    One thing that is patently different between the West and China is how they deal with corruption. Osbourne has just announced a committee without any teeth to investigate the behaviour in the City & Banking.
    Most taxpayers would want the dishonest bankers put on trial. This fiasco will go on for months, in China they would have been executed months ago. Something perhaps we should copy.

  • Comment number 211.

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

  • rate this

    Comment number 210.

    203- SeeDubya

    Many of those are European countries,

    I buy BOSH because I have found them to be the most reliable and the cost to work out cheaper in the long run.

  • rate this

    Comment number 209.

    Does this mean we will be getting less cheap chinese tat? I do hope so, its easy to out compete your competitors when you pay 10p an hour have no health & safety and are ruining the environment ask any tory thats what they want.

  • rate this

    Comment number 208.

    China eh?!
    Manufacturing slowdown, well I'm blowed

    So it's about time we started to build a balanced economy, not just giving the BANKS the money!

    Come on Britian WAKE UP!

    Tea any one


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