China’s economic growth slows to 7.6%

BEIJING — China said its economy grew 7.6% in the second quarter compared with a year earlier. It was the weakest pace of expansion in three years but in line with analysts’ expectations.

Declining investment in real estate and infrastructure as well as shrinking exports to Europe and the U.S. have contributed to the slowdown in the world’s second-largest economy.

“It’s not easy for China to achieve a 7.6% growth rate,” Sheng Laiyun, a spokesman for China’s National Bureau of Statistics, said at a news conference in Beijing on Friday. “It’s already quite an achievement amid the global economic situation.”

The last time the country’s growth sputtered this much was the first quarter of 2009, when the global financial crisis slowed the Chinese economy’s expansion to 6.6%.


China has grown at an average rate of about 10% for the last decade, but that moderated recently as Beijing tried to rein in its overheated economy. Those efforts brought growth down to a 9.2% rate in 2011 and an 8.1% rate in the first quarter of 2012. In the first half of this year, China’s economy grew 7.8% from the same period last year.

Some economists suspect China’s current downturn is more grave than the official data suggest, citing weakening numbers for manufacturing activity, corporate earnings and electricity demand.

A sharp slowdown in growth could create serious financial stress for Chinese companies and local governments that borrowed heavily after the global financial crisis. Many troubled real estate developers are facing maturing loans this year that could force them into bankruptcy.

“What is more dismal than the dismal growth is China’s inability to absorb slower growth,” said Ren Xianfang, a Beijing-based economist for IHS Global Insight. “A 7.8% growth [rate] in the first half already feels quite hard in terms of impact, inflicting huge pains: downward spiral of producer prices, surging manufacturers’ inventories, plunging profits, bankruptcies and pay cuts.”

Heavily invested foreign companies that are counting on steady Chinese growth — such as Burberry, McDonald’s Corp. and Caterpillar Inc. — have also reported falling regional sales. Commodity-driven economies such as Australia’s and Brazil’s are also feeling the pinch of shrinking Chinese demand.

“Speed is essential for China, an economy which is basically built based on the discount-store model of high turnover and low margin, and which outperforms based on size, scale and speed,” said Ren of IHS Global Insight.

Although official growth rates are met with skepticism, they remain important to the ruling Communist party, which has hitched its credibility to delivering robust economic growth.

The central government has already launched efforts to stabilize the economy by cutting interest rates twice since early June, boosting bank lending and approving more infrastructure projects.

Beijing said this year that it would not issue another massive stimulus like it did in 2009 and 2010 because those moves resulted in high inflation and a real estate bubble. The government was also criticized for fueling an unsustainable amount of capital-intensive investment to power growth.

Economists have urged China to use the downturn to rectify imbalances in the Chinese economy for the sake of long-term stability. That would include strengthening the private sector, breaking up state monopolies and bolstering household incomes.

But Chinese Premier Wen Jiabao indicated this week that correcting that imbalance would take a back seat to steadying the economy in the short term.

Tommy Yang in The Times’ Beijing bureau contributed to this report.