China’s economic growth slows in second quarter
China’s attempts to cool off its runaway economy have resulted in slower growth in the second quarter, according to government statistics released Thursday.
The nation’s gross domestic product grew 10.3% from a year earlier, down from a scorching 11.9% in the first quarter.
Although strong expansion earlier in the year helped China recover from the financial crisis, it also introduced greater risks to the economy. Government stimulus spending and loose bank lending have helped fuel a real estate bubble and rising inflation.
Policymakers have tightened credit and introduced stricter mortgage rules earlier in the year to crack down on real estate speculators. Several provinces have also raised minimum wages — moves the central government hopes will boost domestic consumption.
“The level of growth seen in the first quarter was unsustainable,” said Alistair Thornton, China analyst for IHS Global Insight. “The fact that it’s come down is a good sign. The government was over-dependent on investment for a long time. Now they can settle on a more balanced course. Obviously, that’s easier said than done.”
A recent spate of factory strikes has underscored China’s over-reliance on low-cost exports to power growth. China’s leaders have since discussed the importance of boosting wages and easing income inequality to raise domestic consumption.
Though China’s exports surprised some analysts by growing 44% year-over-year in June, many doubt they will remain robust given economic uncertainty in Europe and the United States, major buyers of Chinese products. In another sign of a slowdown, industrial production expanded 13.7% in June compared with the same month a year earlier. That’s down from a 16.5% year-over-year gain in May, according to the numbers released by the National Bureau of Statistics. The consumer price index, China’s leading measure of inflation, also eased, falling to 2.9% in June from 3.1% a month earlier.
“China’s inflation in the first half was mild and within the range of management,” said Sheng Laiyun, a spokesman for the statistics bureau.
Analysts said the new data should mute calls for China to raise interest rates in the short term. Beijing already took a significant step last month by allowing its exchange rate to float more freely — a move that eventually should make China’s currency stronger.
The question remains how much China will allow its economy to cool, especially in its hard-charging property sector.
Housing prices dropped in June for the first time in 16 months, following government measures to rein in speculators. Soaring home prices have hurt first-time buyers and raised concerns about social unrest. Still, property construction has proved a bonanza for developers as well as local governments that sell them land and that are under pressure from Beijing to create jobs. Some estimate that real estate and construction have powered up to a quarter of China’s economy.
Despite stern denials from officials this week, speculation continues to abound that the federal government will not risk economic contraction and will ultimately reverse regulations aimed at containing real estate growth.
“I don’t think there’s any other economic driver in the near future,” said Dong Linfeng, an analyst for Pacific Epoch.
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