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China's economy still on track despite Q2 growth slowdown
2010/07/16

 

Economic data Thursday confirmed market expectations China's economic growth rate has slowed but officials said the country's economy is still on track.

The world's third largest economy expanded at a 10.3-percent year-on-year rate in the second quarter, slower than the 11.9-percent growth in the first quarter and the 10.7-percent growth in last quarter of 2009, the National Bureau of Statistics (NBS) said Thursday.

A WELCOME SLOWDOWN

Many economists welcomed the economy's cooling, saying the slower growth is more sustainable.

The moderation in growth, which the government expected, will help accelerate the transformation of the economic growth pattern and prevent economic overheating, NBS spokesman Sheng Laiyun told a press conference.

Although the pace of second-quarter growth slowed, it was still strong, Sheng said.

Economists had forecast about 10.5-percent growth, as the effects of the country's massive economic stimulus waned.

According to preliminary statistics, China's gross domestic product (GDP) hit 17.28 trillion yuan (2.55 trillion U.S. dollars) in the first six months of this year, up 11.1 percent from a year earlier.

The growth rate was 3.7 percentage points higher than in the same period last year, when the country's economy was still wrestling with the effects of the global financial crisis.

Inflation eased in June. China's consumer price index slowed to a 2.9 percent rise from 3.1 percent in May. The figure was below market forecasts, which ranged from 3.1 percent to 3.5 percent.

The Producer Price Index grew 6.4 percent year on year in June, lower than May's increase of 7.1 percent.

Other data released Thursday also pointed to a slowdown, with growth rates for industrial production, consumption and investment all easing.

China's industrial value-added output grew 13.7 percent in June year on year, down from a 16.5-percent increase in May.

Retail sales expanded 18.3 percent in June year on year, slowing from May's 18.7 percent.

Urban fixed asset investment was up 25.5 percent year on year in the first six months after a 25.9-percent gain in the January-May period.

MAINTAINING STABILITY AND CONTINUITY

Sheng said China will maintain stability and continuity in macroeconomic policy, but increase flexibility, focus and predictability in accordance with economic conditions.

In late 2008, China unveiled a four-trillion-yuan stimulus package and shifted its fiscal policy from a "prudent" to a "proactive" stance and eased monetary policy from "tight" to "moderately loose," to counter the global financial crisis.

These policies have been proved effective as China maintained high growth rates, high employment rates and low inflation against the backdrop of a fragile global economic recovery, Europe's sovereign debt crisis and natural disasters at home, Sheng said.

However, the policies also triggered problems, including a lending boom and a surge in property prices, fanning concerns about inflation and economic overheating.

In April, the government imposed a raft of measures to rein in soaring house prices and curb property market speculation, including tighter scrutiny of developers' financing, the limiting of loans for third-home purchases and higher down-payments for second-home purchases.

June data suggested the property market has started cooling. Average property prices in 70 major Chinese cities fell 0.1 percent in June from May.

Some analysts say China's tough stance on the property market might intensify the growth slowdown. The major Shanghai stock index has declined more than 20 percent since the government introduced the stricter policies.

Sheng, however, shrugged off such concern.

"Property market regulation will not have a great influence on the national economy in the short run. But it will benefit the long-term growth of both the sector and the economy," he said.

Property development investment rose 38.1 percent in the first half, after a 38.2-percent increase in the January-May period. New projects and land purchases both increased in June.

PURSUING QUALITY GROWTH

China set an annual economic growth target for 2010 of around 8 percent, with an increased focus on the quality of growth, according to the 2010 government work report.

Sheng said the government aims to adjust the economic structure and transform the growth pattern by creating a more consumption-oriented economy, rather than one fueled by high investment and exports.

The government also wants to increase the weight of agriculture, manufacturing and services in the nation's economic growth, and decrease that of industrial production.

The government also wants to achieve growth with technology and improvements in management, rather than through high-levels of energy consumption.

The government has announced a series of measures in this regards: subsidies for car and home appliance purchases; the canceling of export rebates on some energy-consuming and high-pollution products; the easing of restrictions for private investment in certain industries; and curbs on loans to polluting and energy-intensive industries.

Sheng said China has made progress in transforming the economic growth pattern, as the output of the services sector contributed 42.6 percent to GDP in the first half, up from 41.3 percent a year earlier, while the contribution of the industrial sector fell to 49.7 percent from 50.1 percent a year ago.

"China will step up efforts to accelerate the economic restructuring as these current improvements are just the beginning and the foundation for the transformation is still fragile," Sheng added.

Judging from the data, China is on the road to more sustainable growth, said an ANZ Bank report.

"A moderation in China's growth is affordable and should not cause panic," said Zhu Baoliang, chief economist at the State Information Center. "We are building the foundation for long-term development."

Zhu expects China's GDP growth to continue moderate, to around 9 percent, in the second half of the year.

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