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

Analysis

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.

Slowdown

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
    +1

    Comment number 387.

    Lived in the far east for a number of years. Chinese tat everywhere, very cheap. Come back to UK to find slightly better quality (CE mark) chinese tat everywhere at twice the price! Tat is tat, driven by cheapest is best policies. There is demand for real, lasting, quality products - but who is left in the UK that knows how to make them?

  • rate this
    +2

    Comment number 386.

    The legal robbery by international investment banks/hedge funds/casino banking and the outrage caused is palpable in the population.

    Yet they continue like the plague of locusts they are - sweeping in to devour without any personal effort, then move on to their next feasting ground - leaving devastation in their path with a fat bonus.

    There seems to be no effective insecticide to stop them.

  • rate this
    0

    Comment number 385.

    China has the advantage due to the fact that the masses in China will continue to purchase goods and services even if their exports decline. Unlike Japan, Germany and other nations China has 1.3 billion people who are eager to become better off financially. China doesn't dependent on its export machine as it once did. China is the only nation that can over come a world wide economic slow down.

  • rate this
    0

    Comment number 384.

    I find it reassuring that we have safe pairs of hands in Spain, Italy and @ the ECB. All with impeccable credentials...wonder if a dark horse will now emerge to replace Merv?

  • rate this
    +4

    Comment number 383.

    380. rifra
    I blame the hedge fund managers"
    -------------
    Me too. I'd like to know how they manage to get bonuses and drive Mercs while investing my money in gilts and other safe houses and reducing my annuity by 25per cent. But perhaps i'm a little sensitive on this one : o)

  • rate this
    +2

    Comment number 382.

    Perhaps it's time for all nation's populations to examine their politician's/leader's expenses?

    The same could be said of those working for quangos such as the WTO, UN, UNICEF, IMF, EU Commission.

    So much money - yet little tangible outcomes with so many endless charity appeals. Makes you wonder if the above are taking the * while just functioning in their own little expensive/exclusive bubbles.

  • rate this
    +4

    Comment number 381.

    7% growth means a doubling every ten years. This is simply not possible in a finite world. We cannot buy their goods because we are crippled by a debt-based money system. They cannot buy the goods they make because their wages are too low. That is why the goods are made there in the first place.
    Exponential growth is a defunct way to prosperity, Only re-distribution in some form can.

  • rate this
    +1

    Comment number 380.

    I blame the hedge fund managers.

  • rate this
    0

    Comment number 379.

    44:Mayna:Reduced benefits means less money in the hands of the people who need it most and would therefore immediately spend it, thereby increasing demand, and putting it in the hands of people who don't need it as much and are more likely to save it rather than spend it, thereby decreasing demand.

  • rate this
    -2

    Comment number 378.

    Living in the UK with high energy costs + VAT and wages not keeping up with basic costs of living is a disaster that the ConDems are failing to address while they cut, cut cut.

    The opposition are no better either. They are as protected from real life as all MPs. ALL overheads paid from a second house to a biscuit.

    Those sitting in the House of Commons are a disgrace with their allowances

  • rate this
    +3

    Comment number 377.

    Chinese growth (if the figures are true) can be explained by the word "displacement".

    It is impossible for the west to try to drive wages down and prices up, so money will tend to head to low price supply areas.

    With a huge labour market, China and India can flourish, but only briefly... Once their population all want BMWs, labour costs will rise.

    The economic see-saw will then swing again.

  • rate this
    +2

    Comment number 376.

    the true costs of Chinese goods will become apparent to us soon.

  • rate this
    +5

    Comment number 375.

    @371 'yowatusay'
    ~~
    I don't think the majority of the west is living large. Neither are the majority of Chinese people. If all you see on TV are celebrities - that's not how real people live in the west. Celebs are given all these designer goods/clothes/bags and commercial media are paid to push them.

    This post will be unpopular, but I hope most ordinary people are sick of mass celeb culture.

  • rate this
    -1

    Comment number 374.

    "China's leaders will be deeply concerned that any further slowdown could lead to rising social unrest."

    That means our western leaders have no worries just be happy.

    Do nothing.

    But do the same old thing, blame China for the western world's impending economic catastrophes.

  • rate this
    +1

    Comment number 373.

    I won’t trust the statistics data from China official.

  • rate this
    +1

    Comment number 372.

    If anyone living in the UK took the time to look at the size of the UK on a map - then you would see what a small and vulnerable island we are.

    We do have the money and capacity to grow our own food; generate our own electricity by buidling new power stations and support our NHS. Yet, strangely the ConDems live in a bubble and have no ambition at all on the basics we need while they squabble.

  • rate this
    -1

    Comment number 371.

    What I see is that the west is living large at the expense of cheap Chinese labour and making bad air pollution in China.

    The west will never get the cheap paying industrial jobs back, the man made western laws will not allow for it.

  • rate this
    0

    Comment number 370.

    We used to say that if America sneezes the whole world gets a cold. The same is true for the West and the BRIC countries, whose growth came from selling to us and providing us with reasons to offshore jobs to them. Now, we have far less money to spend and no decision maker can remain unaware of how their customers feel about off-shoring. So watch out China, I'm afraid we sneezed, big time.

  • rate this
    +1

    Comment number 369.

    A buffoon called Mitt Romney who helped US corporations outsource US jobs mainly to China says he knows how to create jobs and wants to be president of the US. China aside don't you get the feeling that the world's largest economy the American is in the hands of circus clowns? The banking sector is still doing the same things that helped bring on the recession nothing has changed. We're doomed.

  • rate this
    +2

    Comment number 368.

    The release of Chinese growth figures have to be taken in context. China is fully independent with her huge natural resources - water, energy, food.

    It's bizarre she imports so much food with such a huge capacity to produce her own. One might suppose the focus on exporting endless things made of plastic/precious metals is not the future for her people - or the rest of the world? Just a thought.

 

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