BEIJING--China's economic growth decelerated to its slowest pace since
the global financial crisis in the second quarter, dampening hopes
that the world's second-largest economy will provide much support for
the faltering global outlook and prompting expectations that Beijing
will make fresh moves to stimulate growth.
China's gross domestic product slowed to 7.6% year-over-year in the
second quarter, down from 8.1% in the first quarter and its lowest
level since the beginning of 2009, dragged down by a combination of
Europe-blighted exports, stagnant real-estate investment, and the
inability--in the short term--of domestic consumption to take up all
of the slack.
"This should be the bottom for the year," said Lu Ting, an analyst for
Bank of America. "GDP growth should pick up in the third quarter
because of the impact of policy measures taken since May."
The Australian dollar was up modestly after the data were released,
while Shanghai's benchmark stock index was up 0.1% and Hong Kong was
up 0.3%, as investors reacted to growth in line with expectations.
China's data come hard on the heels of a raft of negative numbers from
the U.S. and Europe. In the U.S., the June jobs report saw the
unemployment rate staying high at 8.2%. In Europe, the German Ifo
business-climate survey fell to its lowest level in more than two
years in June.
Fresh evidence of weakness in the rest of the world is bad news for
China, whose factories are already suffering from a contraction in the
European economy--till 2012 their biggest export partner.
Zhang Qikang, a senior manager at ceramics-maker Foshan Monalisa
Industry Co. in the export-dependent southern Chinese city of Foshan,
said while his company is growing, "many ceramics companies have laid
off workers since last year." He added: "All businesses are trying
hard to survive."
Yu Bin, a research director at the Development Research Center, a
Chinese government think-tank, said he expects the Chinese economy to
pick up speed in the second half of the year and grow at around 8% for
the entire year. But for that to occur, China may have to further
stimulate its economy, some analysts argue.
The central bank has already cut interest rates twice since the
beginning of June. Taken together with more flexibility for banks to
make loans below the benchmark interest rate, major borrowers could
see a 1.7 percentage point cut in their cost of credit.
That seems to be producing some results. New bank loans rose markedly
in June, up to 919 billion yuan ($144 billion) from CNY793 billion in
May. But a falling share of medium- and long-term loans to business
suggested investment demand remains weak. Slower growth in industrial
output in June--down to 9.5% on-year from 9.6% in May--was a reminder
that the stimulus will take time to feed through into stronger growth.
Chen Dongqi, a vice president at the Chinese government's Academy of
Macroeconomic Research, says falling inflation means more room for
rate cuts. "Inflation should stay below 2% in the second half. That
means there's room for at least two more rate cuts," he said.
A downturn in the real-estate market is a key factor in China's
slowing growth. Beijing's two-year battle to deflate the national
housing bubble has resulted in weaker sales and dented incentives for
developers to break ground on new projects. Real estate accounts
directly for 12% of China's GDP, according to estimates by the
International Monetary Fund, and also drives demand for construction
materials, furniture and appliances.
"Cement sales are dismal," said a sales manager at Huaxin Cement Co.,
who identified himself as Mr. Gao. "Both price and sales volume are
going down, partly due to excess capacity and partly due to property
tightening." Huaxin is part of cement giant Holcim Ltd. of
Switzerland.
Stabilization in the property sector could be a key factor
underpinning China's growth in the second half. Despite continued
tough rhetoric from the government, there are signs that tight
controls on sales--intended to bring prices under control--have been
quietly relaxed. Sales volumes have been creeping up since February
and prices registered an increase in June, the first after nine months
straight of declines, according to property agency Soufun.
Earlier this week, Chinese Premier Wen Jiabao said that the government
would also focus heavily on investment. In the spring, Beijing
approved a host of steel and energy projects and more such approvals
may be on the way, as a way to lift the economy. Government economists
have said Beijing will calibrate its response to the depth of the
European slowdown.
Zoomlion Heavy Industry Science & Technology Development Co., a large
Chinese producer of construction equipment, is cautiously optimistic
about the impact of the shift to a stimulus policy. "The effects are
likely to show up in the next two to three months, with a limited
rebound in market demand," said a spokesman in a statement.
--Stefanie Qi and Olivia Geng contributed to this article.
Write to Tom Orlik and Bob Davis at tom.orlik@wsj.com
(END) Dow Jones Newswires
July 12, 2012 22:25 ET (02:25 GMT)
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