GDP growth eases in China

China said today that its sizzling economy cooled further in the second quarter, reflecting slowing global demand for its goods.

The nation’s high inflation rate also showed signs of easing, but the government continued to wrestle with how to restrain consumer prices without jeopardizing economic growth.

China’s gross domestic product, the broadest measure of the economy, expanded by 10.1% in the April-June period compared with a year earlier, the National Bureau of Statistics said. For all of last year, China’s GDP advanced by 11.9%.

Some analysts said the latest report belied a sharp decline in certain export manufacturing sectors, such as garment production. As a result, they expect China’s government to slow down the rapid pace of appreciation of China’s currency.

Beijing has allowed the value of the yuan to rise by about 6.5% against the U.S. dollar this year, an acceleration aimed partly at addressing high inflation. The stronger currency has boosted Chinese imports and helped American exporters ship more goods to China.

But Chinese manufacturers for overseas markets have complained that a rapidly appreciating yuan, combined with rising labor costs and other factors, are threatening their survival.

“If government does not do something quickly, with a large number of small and mid-sized enterprises being closed down, many serious social problems will also arise,” said Yi Xianrong, a researcher at the Chinese Academy of Social Sciences in Beijing.

Yet China is not out of the woods in fighting the inflation that has swept the globe.

Today’s report said that growth in China’s consumer price index, a measure showing the movement of select goods, including food and fuel, eased to 7.1% in June from 7.7% in May and a recent peak of 8.7% in February.

Although the declining trend is positive, the latest figure remains well above the government’s inflation target of 4.8%. And in June, Beijing increased fuel and electricity costs for consumers.

Inflation is particularly worrisome to Beijing officials because of its potential for triggering social and political unrest. Li Xiaochao, a spokesman for the National Bureau of Statistics, said as much in announcing the figures.

“Continuously high prices will not only affect the stable and fast development of the domestic economy but also affects ordinary people’s lives, especially low-income groups of residents,” he said. “Therefore, we will continue to work on the price control, to prevent it from rising too rapidly, to prevent inflation.”

But analysts say Chinese policymakers are caught in a bind. They have taken inflation-fighting steps, such as tightening bank lending and letting the yuan gain, yet those measures have choked off credit for businesses and made it tougher for them to sell goods abroad in an already difficult global environment.

Meanwhile, the faster rate of appreciation in the yuan this year has helped bring in a flood of foreign money, adding to inflationary pressures.

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don.lee@latimes.com