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2012-07-13 06:49:11
China's economy has grown at its slowest pace in three years as investment
slowed and demand fell in key markets such as the US and Europe.
Gross domestic product rose by 7.6% in the second quarter, compared with the
same period a year ago. That is down from 8.1% in the previous three months.
In March, Beijing cut its growth target for the whole of 2012 to 7.5%.
China accounts for about a fifth of the world's total economic output and any
slowdown may hamper a global recovery.
At the same time, many of Asia's biggest and emerging economies are becoming
increasingly reliant on China as a trading partner.
"China has been a big factor for the slowdown in Asia this year," said Tai Hui
from Standard Chartered Bank in Singapore.
He added that if China's growth does not pick up in the second half of the year
then "that's going to mean a very difficult second half for a lot of the
manufacturers in this region".
Spurring growth
Analysis
image of Martin Patience Martin Patience BBC News, Beijing
As the world's largest exporter, China is being hard hit by the slowdown in
Europe and elsewhere.
These are the country's worst figures since the start of the global financial
crisis.
China's leaders are pinning their hopes on investment - especially in state
companies - to drive growth in the world's second largest economy.
In recent weeks, they've twice cut interest rates to bolster lending. The
authorities are also pumping money into public works - such as social housing.
Fuel prices have also been reduced.
Many economists believe these measures will ensure that China's growth rebounds
in the coming months.
But with a once-in-a-decade leadership change starting later this year - this
is a sensitive time in Chinese politics. China's leaders will be deeply
concerned that any further slowdown could lead to rising social unrest.
Watch: Stockpiles a symbol of slowdown
However, despite Friday's slower growth figures many analysts tried to allay
fears of a so-called hard landing in China's economy and its subsequent impact
on the rest of the world.
"If you get a drop in the growth rate of 1 percentage point per annum, that's
not a lot in terms of the world gross domestic product," Edmund Phelps, a
professor of political economy at Columbia University and a Nobel prize winner,
told the BBC.
He added that China had a lot of ammunition to counter the slowdown, some of
which it has already started using because of the patchy recovery in the US,
and the ongoing debt and economic issues in the eurozone.
China's central bank has cut the amount of money banks must keep in reserve in
order to boost lending, and it recently cut the cost of borrowing twice in one
month.
Earlier this week, Premier Wen Jiabao said that boosting investment would also
be crucial for stabilising growth, fuelling expectation that more state-driven
stimulus measures would be on the way.
"Now that China's growth is slowing, there are calls for yet another stimulus,"
said Edward Chancellor, global Strategist at investment management firm GMO.
Slowdown
But analysts warned that China's growth problems may not be solved by a simple
injection of capital and a new round of government spending. Especially as many
of today's issues can be traced back to the way the country tried to kick start
growth after the global financial crisis in 2008-2009.
Michael Pettis, Professor of Finance, Peking University: China has been
"massively over-investing"
At the time the central government began pumping huge amounts of money into the
economy, mainly on infrastructure and construction spending.
This led to excess capacity, a surge in property prices and an increase in
consumer costs and inflation.
Faced with these problems and amid fears that the economy may be overheating,
policy makers decided to implement measures to curb lending and slow inflation.
Those steps, along with a drop in demand for Chinese goods from key markets
such as Europe and the US, have caused the most recent cycle of slowing growth.
Start Quote
Credit works on an economy like steroids on the body of an athlete: you need
ever larger injections to maintain the effect
Edward Chanceloor Global strategist at GMO, an investment management firm
Viewpoints: Is China heading for a crash?
In 2011, China's economy grew by 9.2%, down from 2010's figure of 10.4% growth.
Domestic economy
But while the longer-term trend is of a slowdown, China also released a number
of other figures on Friday and they painted a more nuanced and mixed picture of
the economy.
According to the official figures, retail sales increased by 13.7% in June,
little changed from May's 13.8% figure.
At the same time, electricity output, an indicator that many analysts use to
calculate current business and consumer activity, was also flat in June at
393bn kilowatt-hours.
Optimists, however, would have been buoyed by news that new bank loans
increased to $144.4bn in June, up from $124.4bn in May.
The BBC's John Sudworth in Shanghai says the data will do nothing to stop the
economic squabbling over whether China is heading for a hard or soft landing.
"Rising stock piles of coal paint a vivid picture of just the kind of indicator
the bears will use when arguing that 7.6% is proof of the impending economic
catastrophe," he says.
"But here's another picture for you. A new DHL delivery hub built on the
outskirts of Shanghai shows that there are still plenty of bulls out there too.
"For them 7.6% is probably a turning point and they also have their indicators
of choice to support the case."