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China’s G.D.P. Growth Slows As Government Changes Gears
(35 minutes later)
HONG KONG — China’s new tough love approach to overhauling its giant economy showed through in weak economic data released on Monday, underlining just how rapidly growth in the once sizzling economy has cooled.
HONG KONG — China’s new tough-love approach to overhauling its giant economy showed through in weak economic data released on Monday, underlining just how rapidly growth in the once-sizzling economy has cooled.
China’s economy grew 7.5 percent in the second quarter of this year, compared to the same period a year earlier, the national statistics office reported. That was in line with economists’ expectations, and extended a progressive slowdown from 7.7 percent gross domestic product growth in the first quarter and 7.9 percent in the final three months of 2012.
China’s economy grew 7.5 percent in the second quarter of this year, compared with the same period a year earlier, the national statistics office reported. That was in line with economists’ expectations, and extended a progressive slowdown from 7.7 percent gross domestic product growth in the first quarter and 7.9 percent in the final three months of 2012.
Industrial output data for June, also released Monday, came in weaker than forecast, with an increase of 8.9 percent from a year earlier — down from 9.2 percent in May.
Industrial output data for June, also released Monday, came in weaker than forecast, with an increase of 8.9 percent from a year earlier — down from 9.2 percent in May.
Retail sales, however, were better than expected, rising 13.3 percent in June from a year earlier. The May reading was 12.9 percent.
Retail sales, however, were better than expected, rising 13.3 percent in June from a year ago. May’s reading was 12.9 percent.
Sheng Laiyun, the spokesman for China’s National Bureau of Statistics, told reporters in Beijing that the data were within the bounds of official expectations, but he acknowledged headwinds affecting the economy.
Sheng Laiyun, the spokesman for China’s National Bureau of Statistics, told reporters in Beijing that the data were within the bounds of official expectations, but he acknowledged headwinds affecting the economy.
“Viewed overall, national economic performance in the first half of the year was generally stable, and the main indicators remain within the reasonable bounds for the annual forecast,” Mr. Sheng said during a news conference broadcast live on Chinese television Monday morning. “But economic conditions are still complex and changeable.”
“Viewed overall, national economic performance in the first half of the year was generally stable,” Mr. Sheng said during a news conference broadcast live on Chinese television Monday morning, “and the main indicators remain within the reasonable bounds for the annual forecast. But economic conditions are still complex and changeable.”
Senior Chinese officials last week set the tone for a more measured approach to economic expansion by declaring confidence in the government’s growth targets, yet stressing the need for changes to ensure that growth.
Senior Chinese officials last week set the tone for a more measured approach to economic expansion by declaring confidence in government growth targets, yet stressing the need for changes to ensure that growth.
On Friday, a meeting of the State Council Standing Committee — or China’s cabinet — that was chaired by Prime Minister Li Keqiang said that “innovation and expansive thinking are needed to expand domestic demand.”
On Friday, a meeting of the State Council Standing Committee — or China’s cabinet — that was chaired by Prime Minister Li Keqiang said that “innovation and expansive thinking are needed to expand domestic demand.”
“There needs to be both effective and stable growth and also structural adjustment, ensuring that there is action while maintaining stability,” read an official summary of the meeting, according to state-run media.
“There needs to be both effective and stable growth and also structural adjustment, ensuring that there is action while maintaining stability,” read an official summary of the meeting, according to state-run media.
In an apparent effort to dispel jitters about the economy, China’s state-run media have also featured commentaries saying that the government’s economic policies remain on track, including the target of 7.5 percent G.D.P. growth for the whole year.
In an apparent effort to dispel jitters about the economy, China’s state-run media have also featured commentaries saying that the government’s economic policies remain on track, including the target of 7.5 percent G.D.P. growth for the whole year.
To a large degree, China’s recent slowdown has been engineered by the authorities in Beijing, who are trying to steer the Chinese economy from what is an increasingly outdated growth model toward expansion that is more productive and sustainable, albeit slower.
To a large degree, China’s recent slowdown has been engineered by authorities in Beijing, who are trying to steer the Chinese economy from an increasingly outdated growth model toward expansion that is more productive and sustainable, if slower.
While this slowdown has been happening for more than two years, a flood of comments from policy makers in recent months has made it increasingly clear that the new leadership that took the helm in March is serious about tolerating significantly slower growth in return for the longer-term gains of a more balanced economy.
While this slowdown has been happening for more than two years, a flood of comments from policy makers in recent months has made it increasingly clear that the new leadership that took the helm in March is serious about tolerating significantly slower growth in return for longer-term gains.
For years, China has relied on cheap credit, heavy manufacturing, infrastructure investment and exports as key economic drivers — a combination that produced double-digit annual growth rates for much of the past 30 years.
For years, China has relied on cheap credit, heavy manufacturing, infrastructure investment and exports as economic drivers — a combination that produced double-digit annual growth rates for much of the past 30 years.
Increasingly, however, this growth model is running out of momentum. China’s population is aging and its labor force is shrinking, meaning that labor productivity has to be raised to make up for the shortfall. Rising wages and a stronger renminbi have eroded China’s competitiveness and are undermining its status as the blue-collar factory floor of the world. At the same time, demand in the key export markets of Europe and the United States remains slack.
Increasingly, however, this growth model is running out of momentum. China’s population is aging and its labor force is shrinking, meaning that labor productivity has to be raised to make up for the shortfall. Rising wages and a stronger renminbi have eroded China’s competitiveness and are undermining its status as the blue-collar factory floor of the world. At the same time, demand in key export markets remains slack.
Aware of these pressures, the new leadership in Beijing has said it wants to shift the economy more toward domestic consumption, reduce the inefficiencies and environmental degradation that came with headlong growth, and permit more competition and market liberalization in areas that have traditionally been the preserve of state-controlled enterprises.
Aware of these pressures, the new leadership in Beijing has said it wants to shift the economy more toward domestic consumption, reduce inefficiencies and environmental degradation that came with headlong growth and permit more competition and market liberalization in formerly state-controlled areas.
In addition to these structural challenges, a big increase in lending in recent years, much of it opaque and outside the regulated banking system, has fanned concerns of asset-price bubbles and the risk of defaults.
Recent pronouncements from policy makers and a days-long cash crunch in the banking system last month have created an impression that Beijing is prepared to tolerate some pain.
Reining in this lending splurge, analysts say, is an undertaking that will require a delicate balancing act. On the one hand, the authorities want to clamp down on lending; on the other, they must avoid sniffing out growth altogether.
“The fact that we have not seen moves toward more stimulus seems to show that they are comfortable with seven-ish growth rather than nine or 10,” said Paul Gruenwald, chief economist for Asia-Pacific at Standard & Poor’s, at a media briefing last week. “It suggests that the authorities understand that there is a trade-off between growth and financial stability.”
Recent pronouncements from policy makers, and a days-long cash crunch in the banking system last month – apparently aimed at getting lenders to adopt more cautious lending practices – have created an increasingly clear impression that Beijing is prepared to tolerate a degree of pain in its pursuit economic overhauls.
“The fact that we have not seen moves toward more stimulus seems to show that they are comfortable with 7ish growth rather than 9 or 10,” said Paul Gruenwald, chief economist for Asia-Pacific at Standard & Poor’s, at a media briefing last week. “It suggests that the authorities understand that there is a trade-off between growth and financial stability. At the same time, if you let growth fall too low, then you risk a deterioration of banks’ loan books. They need to find the sweet spot.”
For the time being, most analysts believe that Beijing is likely to hold off stepping on the economic accelerator pedal again – despite the weak economic data released on Monday.
As long as the jobs market remains firm and inflation remains tame – at they have done so far – the authorities appear happy to tolerate the weaker pace of growth, Yao Wei, China economist at Société Générale in Hong Kong, said last week, adding that she did not think policy makers would substantially ease their “tough love stance” in response to the data.
Economists at ABN Amro wrote in a research note last week that “the authorities only recently have been stressing that the quality of growth matters, and have been attempting to curb excesses in the shadow banking and property sectors, as well as engineering a shift from investment-led growth to consumption-led growth.”
“This is not a policy objective that the authorities will shelve in a hurry, without evidence that the economy is heading for a hard landing,” the ABN Ambro economists wrote. “That still does not look to be the case.”
The challenges ahead remain huge, as even some economists who advise the Chinese government acknowledge.
Xia Bin, the director of the Finance Institute of the State Council Development Research Center, told a meeting in Beijing over the weekend that symptoms of potential crisis in the Chinese economy had been covered over by excessive lending, in remarks widely reported by Chinese business news Web sites.
“Now it’s not a matter of again having general discussion of whether there are systemic risks in the Chinese economy,” said Mr. Xia, according to the reports. “Rather, it should be about finding a way as quickly as possible to step-by-step pop bubbles, and step-by-step sterilize the losses that have already occurred, in order to escape the eruption of a large-scale crisis.”
