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 307.

    Maybe someone can tell me why 7.6% growth is such a bad number?
    We would kill for that kind of growth in the West.
    Can anyone explain please?

    Elementary. Western countries (Australia, Canada, EU&US) are MATURE economies with SATURATED markets. Typical growth in such countries in good times is 4%-4.5%.

    Whereas normal growth in UNDERdeveloped countries like China is typically 8-9%.

  • rate this

    Comment number 306.

    It's very easy to criticise an entire civilisation and create uncompromising stereotypes without having ever been there or without really immersing ourselves in any aspect of that culture
    The BBC seems to do this quite well. Other countries aren't as democratic; we must fear those who are different to us; they're all censored etc

    How much do some of us truly know about our own media brainwashing

  • Comment number 305.

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

  • rate this

    Comment number 304.

    China faces issues regarding export of industry to countries with even lower cost bases (Vietnam, Myanamar etc) but it is showing signs of developing its own brands rather than being contracted out to manufacture American and European brands. Their long term outlook remains strong because the government will intervene to maintain growth and they are entering a new phase of economic development.

  • rate this

    Comment number 303.

    Re #298 "India (5.3 percent) and Russia (4.9 percent). World economy probable will grow 2.5% this year and 3.1% in 2013... USA growth in 1Q this year was 1,9%."

    You forgot an impressive growth in the top EU economic powerhouse, Germany: 0.5% .

    Btw. Brazil, which had 7.5% growth in 2010, now has merely 2%.

    P.S. I doubt economic results for 2013 will be any better than for 2012.

  • rate this

    Comment number 302.

    @294 'the-moog'
    Amusing you are. Never mind, it's increasingly clear where your narrow interests lie looking at your post history.

    The most curious aspect is that you have a specific agenda that doesn't take into account those who have a wider view of life and affects on ordinary people due to international devastation due to investment banks/hedge funds.

  • rate this

    Comment number 301.

    @70. Paralell World

    I was born in Germany while my dad was working there as head of a plant, German workers are efficient and are renowned for it world wide however what you might like to know is working conditions, quality of products etc is no better than that in the UK, there is also no such thing as an accident, if a staff member falls over, someone has to be blamed, i prefer the UK anyday.

  • rate this

    Comment number 300.

    Maybe someone can tell me why 7.6% growth is such a bad number?
    We would kill for that kind of growth in the West. In fact, if growth was this rapid in the west we would probably hike our interest rates to 7-8%

    Can anyone explain please?

  • rate this

    Comment number 299.

    Someone here asked why are there no comments from Chinese posters.

    I'll explain their absence in 3 words:

    Great Chinese FIREWALL.

  • rate this

    Comment number 298.

    Slow economic recovery in US and EU already slow down growth in BRIC : economists cut their forecasts for Brazil's economic growth in 2012 to 2.72 percent; China probable 7%, India (5.3 percent) and Russia (4.9 percent). World economy probable will grow 2.5% this year and 3.1% in 2013... USA growth in 1Q this year was 1,9%. I expect steady and slow growth in USA this and next year.

  • rate this

    Comment number 297.

    Oh & one other thing, China's one child policy is coming back to haunt them, because their population is aging rapidly & by 2050 US will have a younger population than China & will have that advantage in boosting their economy, by even 2013 China could have a pension fund shortfall. Also, boys outnumber girls being born by 20% so there will be a gender gap there, that will cause unrest. Catch 22!

  • rate this

    Comment number 296.

    273.Jack Napier
    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.

    Actually, no you can't. the 1st is disturbing the peace and you wouldn't see any "this comment has been removed by the moderators" for the 2nd

  • rate this

    Comment number 295.

    289. the-moog

    I agree - your opinion is respected and noted. That's what I like about the internet... I sometimes need to stop and think.

  • Comment number 294.

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

  • rate this

    Comment number 293.

    " If the growth goes slows further social urest will occur already happening in Tibet and East Turkestan, so price that one into your investments."

    A small correction: Protests in Tibet and E. Turkestan (Xinjiang) were not& are not due to worsening economic condictions.

    But the result of oppression of those 2 non-Chinese, PRC-occupied countries and attempts to destroy their culture&religion.

  • rate this

    Comment number 292.

    @289 'the-moog'
    No, Im not sore, I like to challenge your narrow viewed posts. That's freedom of speech. There are times when you forget to read your previous posts - or are several people writing under your screen name?

  • rate this

    Comment number 291.

    Support Britain.

    No call centres abroad. Boycott firms who have.

    Loan money to British businesses who will remain in Britain employing British workers paying British Tax and spending money on British Goods.

    Support British Farmers.

    Our priority must be our people..... the demise of China is under way best be prepared.

    Government by the people for the people ...(oh you stupid boy!)

  • rate this

    Comment number 290.

    A nation in decline and yet with no humility... double standards make us feel better about ourselves?

    Huge Chinese population a burden to the planet ... birth control how very evil!

    Chinese products all rubbish ... I want that iPhone!

    Oh why oh why don't the Chinese remain poor and humble to let the old masters of the universe feel good!

  • Comment number 289.

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

  • rate this

    Comment number 288.

    "You are still working on the model that China needs us in the West to buy its goods. But they have a billion+ people in their own country to supply with a TV, car, fridge etc"

    You assume that most of those 1.3 bn people have any purchasing power. PRC's economy is EXPORT-based. Beijing could stimulate domestic consumption, but that would mean increasing wages.Thus losing competitive edge.


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