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 287.

    @274 'the-moog'
    Anyone would think you have a one track narrow agenda - oh, yes you do!

    You know you can't stand on your comments because you eventually resort to insults to those who challenge your diatribe which is familiar here on HYS.

    You are a regular one trick pony that insults the intelligence of the most perceptive and takes advantage of those who haven't met you before. Sigh.

  • rate this

    Comment number 286.

    The market for Chinese tat has fallen because all the workers who used to buy it have been laid off due to the outsourcing of production to China.

  • rate this

    Comment number 285.

    Short term polocies for short term gain. We are now at the mercy of others.

    Get back to basics. China has a stronghold on Europe. Times to release the reins.

    Start by making loans to small businesses. If the banks wont why can't the goverment?

  • rate this

    Comment number 284.

    273.Jack Napier
    ..shouting abuse about the British government without...
    Many of you missed the point of democracy. If you do so here, nobody care because they probably think you have mental problem and police or NHS don't have the budget for you; if you do so in China, you will probably be led away for good(not interrupting others). Learn Chinese and see what Chinese are sayin

  • rate this

    Comment number 283.

    Part 2
    Chinas economy is begining to worry the world, that India recently tested a rocket which brings Beijing with in range of a neclear strike from India. I see NO sanctions are on the table for India, and they allready have Nuclear weapons. It is estimated that in 7-10 years time India will have a larger population than China

  • rate this

    Comment number 282.

    The Chinese economy can only do well as they're not bothered about such decadent fripperies as worker's rights, safety standards, or paying a decent wage. In the 21st century, that sort of work culture has to be fragile. Wonder if any of those Dragon's Den-type headmasters will ever feel a bit uneasy about pushing Mandarin Chinese into their schools.

  • rate this

    Comment number 281.

    1. Western companies (prominently including APEC member - U$A) are already increasingly moving their manufacturing to such APEC countries like Indonesia, (South) Korea, Malaysia, Philippines,Taiwan, Vietnam.

    2. In view of growing social demands Chinese labor cost will have to go up if Beijing regime wants to survive.

    3. Increased robotization in EU & U$A makes cheap labor less&less relevant.

  • rate this

    Comment number 280.

    274. the-moog

    Thank's for the reply.

    All I was trying to say was that you need to be Chinese to understand the economic progress that their country has achieved over the past 20 years. We are outsiders.

    I can't sit here and pass judgement on nation that is unknown to me. I sense they are progressing... and I wish them well.

    Please... I'm not a racist. That offends.


  • rate this

    Comment number 279.

    Why does almost every BBC TV report from China have the reporter stood on the Shanghai waterfront, as if it was typical China? It would be like reporting on the state of manufacturing in Birmingham in front of Big Ben.

  • rate this

    Comment number 278.

    273 jack napier
    write what you like ........... seem to remember people being covicted after the riots.... hopefully this communication lark will be convicting some of our biggest fraudsters...... bankers pollititions etc

  • rate this

    Comment number 277.


    It should be good news that, The Chinese economy is slowing down. It means they will not be gobbling up all the worlds commodities. Thus the price of fuel, power & raw materials should fall. But the Stupid Euro countries have put sanctions on Iranian oil. They are the 4th biggest producers in the world. The Chinese wont and therefore get oil cheaper.


  • rate this

    Comment number 276.

    They had a property building boom like Spain and Dubai and exploit their workers. No wonder their top people can buy art for millions. They've concreted over their land/ food supply in a country with a ridiculously high population. Back to providing the basics for everyone in the world, not billions for some and none for others.

  • rate this

    Comment number 275.

    Growth = inflation, soon the Chinese will want more pay to live, then eventually they will be looking for a cheap country to manufacture their goods, within 10 years that will be the UK.

  • Comment number 274.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this

    Comment number 273.

    yet Chen is in US as a scholar, Ai is a wealthy dissident artist in China.


    Yeah, but on the other hand I could walk into the street right know & start shouting abuse about the British government without any fear of reprisals. I can also write what I want in public forums, again with no fear of punishment.

    Is it honestly the same in China?

  • rate this

    Comment number 272.

    I know a couple of Aussie ex-pats now living in China. They love it, they like how the elderly receive respect and how people care more for each other than they do in the West.

    I agree with 254 though, to give a valid opinion, you need to live in China for years and experience their lifestyle 1st hand - otherwise it's rambling conjecture

  • rate this

    Comment number 271.

    257. the-moog

    Moderators - please reinstate this comment... I can deal with this individual's accusations without assistance. I might even be able to enlighten him/her.

  • rate this

    Comment number 270.

    "Shame too that our media only focuses environmental destruction by China more than the environmental destruction, regime change etc. by UK and USA"

    Or point out the environmental damage caused by these developing countries is caused by the west anyway since we get them to make all our stuff, it's a bit rich for us to finger point at them when we make them do our dirty work.

  • rate this

    Comment number 269.

    @249 'the-moog'
    Certain emerging nations have a a huge industry in aborting on the basis of gender - females - via thousands of clinics dedicated to determining the gender of the unborn.

    Certain cultures still believe that a male child is the nirvana and women are still blamed for producing females who do all the work as their punishment while men sit around all day.

  • rate this

    Comment number 268.

    Top story ( not ) Terry Racism (not)
    Sad old bbc


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