China’s economy slowed in the second quarter as exports weakened and lending curbs bit, prompting some banks to cut their 2008 growth forecasts and to rule out a rise in interest rates this year.
Annual gross domestic product growth eased to 10.1 per cent in the second quarter from 10.6 per cent in the first three months of the year and 11.9 per cent in all of 2007, the National Bureau of Statistics (NBS) said.
Given the depths of the still-unfolding global credit crunch and a string of natural disasters, including a devastating Sichuan earthquake in May that killed more than 70,000 people, officials said the economy had shown impressive resilience.
“This year we have faced difficulties and challenges both from outside and domestically. However, the economy still maintained stable and fast growth,” the bureau’s spokesman, Li Xiaochao, told a news conference.
However, Li said the economy faced problems, notably on the price front.
While consumer inflation slowed to 7.1 per cent in the year to June from May’s reading of 7.7 per cent and February’s 8.7 per cent peak, factory-gate inflation accelerated to 8.8 per cent — the fastest annual rate since the mid-1990s — from 8.2 percent.
As such, China faces broadly the same dilemma as the United States and others: how to keep bearing down on inflation while supporting growth.
“Some industries that were overheating are clearly showing signs of cooling after the macroeconomic adjustments,” Zhu Jimin, head of steelmaker Shougang Group and a member of the Chinese legislature’s financial advisory committee, told reporters.
Economists said China was likely to respond by tweaking existing policies rather than abruptly abandoning its declared “tight” monetary policy stance.
Steps may include a selective easing of the central bank’s credit curbs to help cash-strapped sectors such as real estate; increased tax rebates for exporters facing tough times in markets including textiles; and, possibly, a slower rise in the yuan.
“As for monetary policy, I think the central bank will fine-tune in the second half, loosening the credit quotas on bank lending, which are hurting small firms,” said Zhao Qingming, a senior economist with China Construction Bank in Beijing.
In addition, Goldman Sachs and JPMorgan Chase said they now no longer expect the People’s Bank of China, the central bank, to raise interest rates this year.
Frank Gong with JP Morgan trimmed his forecast for China’s 2008 GDP growth to 10.2 per cent from 10.5 per cent; Hong Liang and Yu Song at Goldman Sachs revised their projection down to 10.1 per cent from 10.5 per cent.
That would still mark the sixth straight year of double-digit growth for China, which is almost certain to leapfrog third-placed Germany this year in the global economic rankings to stand behind Japan and the United States.