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China’s economic growth eases to 9.5%

China’s economic growth eases to 9.5%

13/07/11

Jamil Anderlini

The Financial Times

 

China is likely to persevere with tightening policies aimed at tackling surging inflation after the Chinese economy grew a robust 9.5 per cent in the second quarter from a year earlier, a mild slowdown from its first quarter pace.

 

Economic data released on Wednesday showed Chinese growth holding up well, defying those who feared government tightening measures could trigger a “hard landing” for the world’s second-largest economy.

After inflation hit a three-year high of 6.4 per cent in June, China’s central bank raised interest rates last week for the fifth time since October and has also raised the portion of deposits that banks must hold in reserve nine times over the same period.

“Controlling inflation remains the top policy priority in the short term, and we continue to expect monetary policy to remain tight in the next few months,” said Peng Wensheng, an economist with CICC, the Chinese investment bank.

With Beijing trying since last year to limit bank lending, cool the scorching real estate market and slow rapid price increases, most economists had expected significantly lower GDP growth in the second quarter than the 9.7 per cent year-on-year increase in the first three months.

The stronger-than-expected second quarter growth of 9.5 per cent was boosted by growth in industrial production of 15.1 per cent from a year earlier in June, up from 13.3 per cent growth in May and the fastest pace in almost a year.

Resilience in underlying growth will give policymakers room in case they need to implement further measures to tackle stubbornly high inflation.

Politically sensitive food prices rose 14.4 per cent from a year earlier in June, driven by a 57 per cent year-on-year increase in the price of pork, but most economists believe inflation will peak this month and then start to moderate.

Officials struck a confident note as they revealed the latest economic figures.

“There is only a very small chance that China’s economy will witness a drastic and rapid decline,” said Sheng Laiyun, spokesman for the National Bureau of Statistics said on Wednesday. He said the mild slowdown in the second quarter was expected and desirable and that the Chinese economy was “just like a person who can’t always run at an accelerated speed – he has to slow down in order to run well over the long term.”

However, the raft of data released on Wednesday also showed that China’s growth remains seriously unbalanced and that Beijing is making little headway in its efforts to shift from over-reliance on investment towards a more consumption-driven model.

Investment in real estate and other fixed assets remained strong in the second quarter “indicating the persistent nature of over-investment in the country at present,” according to Liao Qun, an economist at Citic Bank International.

Retail sales in June were up 17.7 per cent from a year earlier but once the figure was adjusted for inflation analysts said this was the weakest monthly growth in at least six years.

In fact, investment contributed nearly twice as much as consumption to yearly growth in the second quarter (5.9 percentage points compared to 3.3 points), according to estimates from Capital Economics.

“Put another way, consumption, which already accounts for an exceptionally low level of spending, continued to fall as a share of GDP,” said Mark Williams, senior China economist at Capital Economics. “This pattern of growth is not sustainable, as the government has acknowledged; the longer investment-led growth continues, the greater the risk that capital is misallocated, undermining the banking sector, and that overcapacity becomes a serious issue.”

 

http://www.ft.com/cms/s/0/5b868f66-acfd-11e0-9623-00144feabdc0.html#ixzz1SdLd2kff

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