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China’s G.D.P. Growth Slows As Government Changes Gears China’s G.D.P. Growth Slows as Government Changes Gears
(about 7 hours 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 lackluster 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 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. China’s economy grew 7.5 percent in the second quarter of this year, compared with the same period a year earlier, the National Bureau of Statistics reported. The figure was in line with economists’ expectations, but represented 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. The growth in fixed asset investment in urban areas, another key measure of economic activity, also slowed slightly during the first six months of the year.
Retail sales, however, were better than expected, rising 13.3 percent in June from a year ago. May’s reading was 12.9 percent. On the upside, however, retail sales came in better than expected, rising 13.3 percent in June from a year earlier. The May 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. The slowdown in the world’s second-largest economy after the United States has left some analysts concerned that China could lose yet more steam in the coming quarters, denting the ravenous demand for goods that has been a key support to global growth at a time when Europe and the United States are struggling to grow.
“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.” Xianfang Ren, an economist at IHS Global Insight in Beijing, wrote in a research note on Monday that China’s growth was “at risk of stalling,” and that “the downside risk for growth has become much more elevated now than a few months ago.”
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. Increasing signs that China is faltering have prompted a number of economists to downgrade their forecasts for the country. Zhang Zhiwei, China economist at Nomura, lowered his growth forecast for 2014 from 7.5 percent to 6.9 percent following Monday’s data release (he continues to project 7.5 percent growth for this year).
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.” Officials in Beijing, however, continued to signal on Monday that they were comfortable with the slowdown, which comes as the country is preparing for a major structural overhaul designed to put future expansion on a more sustainable and balanced footing albeit at the price of more moderate growth.
“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. Sheng Laiyun, the spokesman for the statistics bureau, said on Monday that the latest data were within the bounds of official expectations, though he acknowledged headwinds were buffeting the economy.
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. “Viewed over all, 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. “But economic conditions are still complex and changeable.”
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. To a large degree, China’s recent cooling has been engineered by the authorities in Beijing, who are trying to steer the economy from an increasingly outdated growth model toward expansion that is more productive and sustainable.
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. 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 for the foreseeable future in return for the longer-term gains of a more balanced economy.
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. Evidence of China’s cooling could prompt some limited policy shifts aimed at supporting especially pressured parts of the economy, analysts said. On Monday, for example, the governor of China’s central bank, Zhou Xiaochuan, and other officials said the government would extend more support to small businesses as part of its efforts to ignite new sources of growth.
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. Speaking at a conference about small business policy, Mr. Zhou outlined the challenges confronting policy makers.
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. “Currently, domestic and external economic conditions are unusually complicated, there are quite a number of destabilizing and uncertain factors, and the downward pressures on the economy are quite considerable,” Mr. Zhou said, according to a transcript of his comments on the Chinese government’s main Web site.
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. Still, few analysts expect the government to revert to heavy-hitting stimulus measures of the kind implemented after the financial crisis.
“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.” “The new leaders’ tough-love stance will not be easily swayed, at least not by this latest set of data,” Yao Wei, China economist at Société Générale in Hong Kong, said in a research note. “We continue to see limited chance of any significant monetary easing or infrastructure stimulus from Beijing in the near term.”
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.
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.
Last week, China’s customs department reported that exports in June fell 3.1 percent from a year earlier, the first drop since early 2012. Imports decreased 0.7 percent, falling for the second month in a row. Both figures were far below the expectations of analysts, who had projected a 4 percent rise in exports and an 8 percent climb in imports.
Aware of these pressures, the new leadership has said it wants to reduce the inefficiencies and environmental degradation that came with headlong growth, permit more competition and market liberalization in areas that have traditionally been dominated by state-controlled enterprises, and shift the economy more toward domestic consumption. It is placing a heavy emphasis on increased urbanization as a driver of development and income growth.
Much uncertainty remains, however, as to the timing, pace and exact nature of the changes that Beijing wants to achieve: The policy pronouncements so far have been broad in nature, and little more detail is likely to be forthcoming until a meeting of the Communist Party Central Committee this autumn.
Shaking up the status quo, moreover, is likely to be tough, analysts say, not least because any significant changes risk running into resistance from vested interests in the political economy, and could undermine the reach and authority of the Communist Party that has ruled the country since 1949.
In addition to these structural challenges, Beijing also needs to tackle a big increase in lending, much of it opaque and outside the regulated banking system, that has fanned concerns of asset-price bubbles and the risk of defaults in recent years.
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 snuffing out growth altogether.
A days-long cash crunch in the banking system last month – apparently aimed at getting lenders to adopt more cautious lending practices – has created an increasingly clear impression that Beijing is prepared to tolerate a degree of pain while it pursues 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,” Paul Gruenwald, chief economist for Asia-Pacific at Standard & Poor’s, said at a media briefing in Hong Kong 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 again unless the overall economy worsens sharply.
Highly sensitive to anything that could set off social discontent, Chinese policy makers are likely to be especially responsive to any signs that the job market is deteriorating.
“The labor market is a critical wild card for the policy outlook,” Mr. Zhang of Nomura said. Reliable data on the job market are hard to come by, meaning that observers have to rely largely on anecdotes reported in the news media to get a sense of how employment is holding up. But so far, Mr. Zhang said, “we’ve seen nothing alarming” on that front.