China’s economic growth eases off to 7.5 percent, tests reform boost

BEIJING - Reuters

China’s leaders face new pressure to stimulate a slowing economy after growth decelerated for a second consecutive quarter, hurt by weak trade and efforts to cool a credit boom. AP photo

China’s GDP growth slowed in the second quarter to 7.5 percent year-on-year as weak overseas demand weighed on output and investment, lining up a test of Beijing’s resolve to revamp the world’s second-biggest economy in the face of deteriorating data.

Other figures showed industrial output in June rising slightly less than forecast compared with a year earlier, but retail sales increasing more than had been expected.

“These figures are not surprising, adding to signs of downward pressure on China’s economy,” said Zhou Hao, an economist at ANZ Bank in Shanghai.

The Australian dollar, which is highly sensitive to Chinese demand for Australian raw materials, rose on relief the GDP numbers were not weaker, following last week’s report of a surprise fall in exports in June from a year earlier.

Economic performance ‘stable’

China’s statistics bureau said the economy’s performance in the first half of the year was stable overall and that indicators were within a reasonable range.

New Premier Li Keqiang has been prominent in pushing for economic reform over fast-line growth, suggesting the government is in no rush to offer fresh stimulus to revive an economy in a protracted slowdown.

With the latest GDP data, China’s growth has slowed down in nine of the last 10 quarters.
The government’s official growth target for 2013 is 7.5 percent, impressive by world standards but it would be the slowest pace in 23 years for China.

The latest data showed the economy grew 7.6 percent in the first half of the year from a year earlier, just ahead of the full-year target.

Analysts have cut their forecasts for 2013 full-year growth in recent weeks following a run of weak data and government comments on slowing growth. Ahead of yesterday’s economic figures, they were mostly forecasting 2013 growth between 7 and 7.5 percent.

Last week, customs data showed China’s exports fell 3.1 percent in June against forecasts for a rise of 4 percent, while imports dipped 0.7 percent versus an expected 8 percent rise. The customs administration added that the outlook for July to September was “grim.

Other figures had shown factory-gate deflation persisted for a 16th straight month, backing the view that the economy, plagued by industrial overcapacity, is losing momentum.

Annual consumer inflation accelerated more than expected in June, but remained subdued at 2.7 percent, below Beijing’s annual target of 3.5 percent.

The main worry for China’s leaders is if the economic slowdown leads to high unemployment that could spark social unrest. So far government officials say employment is stable.

So for now, economists do not see any major stimulus or policy shift and instead expect the government to tough out the slowdown as they pursue a longer-term vision of reforming the economy towards consumer-led, rather than export- and investment-led growth.

Beijing is still cleaning up trillions of dollars in local government debt left over from its last spending spree during the 2008/2009 global financial crisis, while trying to rein in off-balance-sheet loans.

“The focus is still on reforms. The chances of a cut in interest rates or banks’ reserve ratio look slim,” Xu Hongcai, senior economist at the China Centre for International Economic Exchanges (CCIEE), a think-tank in Beijing, said before the release of the GDP data.

“Previously, when the economy was not good, local officials held out their hands for money from the central government. But now they have to embrace reforms as no money will be given.”