China’s Growth Slows

GDP expands 7.6% in Q2, the slowest pace in three years, showing need for stimulus measures.

China’s growth slowed for a sixth quarter to the weakest pace since the global financial crisis, putting pressure on Premier Wen Jiabao to boost stimulus to secure a second-half economic rebound.

Gross domestic product expanded 7.6 percent last quarter from a year earlier, the National Bureau of Statistics said today in Beijing. The pace, a three-year low, compares with an 8.1 percent gain in the previous period and the 7.7 percent median forecast of economists. Industrial production increased at a slower pace in June while retail sales growth decelerated.

Today’s data painted a mixed picture from a pickup in fixed-asset investment that could signal the economy is stabilizing to the warning sign that electricity output failed to increase in June from a year earlier. Singapore reported an unexpected economic contraction as China’s slowdown undermines a global recovery already threatened by Europe’s debt crisis and limited U.S. job growth.

“The fact that the data shows persistent weakness --rather than a precipitous plunge -- means policy makers are likely to continue incremental monetary accommodation but not embrace a more aggressive fiscal stimulus policy response in the immediate term,” said Ramin Toloui, Singapore-based global co-head of emerging-markets portfolio management at Pacific Investment Management Co., which manages the world’s largest bond fund.

The yuan weakened for a third day and headed for the biggest weekly decline in six weeks, falling less than 0.1 percent to 6.3760 against the dollar at 12:05 p.m. in Shanghai. The benchmark Shanghai Composite Index was little changed after two days of gains.


Export Slowdown

China’s export growth in the first half cooled to 9.2 percent, down from 24 percent in the first six months of 2011, as Europe’s austerity measures and government debt burdens capped shipments. Also dragging on demand is a crackdown on housing-market speculation.

China can’t relax the property curbs, which have reigned in speculation and investment in real estate, Sheng Laiyun, spokesman for the National Bureau of Statistics, said at a briefing today. The economic slowdown is partly the result of a decline in China’s potential growth rate after more than 30 years of high-speed expansion, Sheng said. He said bearish views on the economy are unfounded and that industrialization and urbanization will help.

Estimates for growth in the world’s second-biggest economy in a Bloomberg News survey of 38 analysts ranged from 7.3 percent to 9.3 percent, with all except one predicting a slowdown from the first quarter.

First-half expansion was 7.8 percent, the statistics bureau said. Wen in March set a 7.5 percent growth target for this year, down from an 8 percent goal in place since 2005.

The People’s Bank of China on July 5 announced the second interest-rate cut in a month, adding to the first since 2008. The central bank also widened the discount available to most borrowers to 30 percent from 20 percent off the benchmark rate. Authorities have lowered banks’ reserve requirements three times starting in November to spur lending and support growth.

Wen pledged to intensify fine-tuning of policies as downward pressure on the economy remains “relatively large,” according to a July 8 report by the official Xinhua News Agency. At the same time, the premier said authorities will “unswervingly” sustain property controls and prevent a rebound in prices, Xinhua said.


Excavator Sales

Sany Heavy Industry Co., China’s biggest maker of excavators, lowered its annual unit-sales forecast, Vice Chairman Xiang Wenbo said in a July 11 interview. A “meaningful recovery” in demand for earth-moving equipment may not be visible until the first quarter of next year, Xiang said.

“The Chinese economy has slowed, but it is not collapsing as many fear,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd., which manages almost $100 billion. “Past policy easing plus more to come suggests that growth will pick up to around an 8 percent pace over the second half.”

U.S. companies are feeling the effects of China’s deceleration. Advanced Micro Devices Inc., the second-biggest maker of processors for personal computers, this week reported an unexpected drop in quarterly sales in part because of weakness in China. Cummins Inc., a maker of truck engines, reduced its revenue forecast, saying demand in Brazil, China and India isn’t improving as the company anticipated.

China’s industrial production expanded 9.5 percent in June from a year earlier, the statistics bureau said, comparing with the 9.8 percent median estimate in a Bloomberg survey. Fixed-asset investment excluding rural households increased 20.4 percent in the first six months from a year earlier, the data showed, versus 20.1 percent in the first five months and a 20 percent forecast.

Retail sales advanced 13.7 percent last month from a year earlier, compared with the 13.4 percent median forecast of economists. Data earlier this week showed that imports rose less than estimated in June while export growth slowed and new yuan loans topped predictions.

Promoting investment growth is key to stabilizing the economic expansion, Wen said during meetings with economists and company executives July 9 and 10, according to a government statement. The remarks may signal public investment is likely to rise in the coming months, Nomura Holdings Inc. said.

Rio Tinto Group, which counted on China for 31 percent of its $61 billion in sales last year, expects growth in the nation to accelerate in the second half on the recent fiscal and monetary loosening, Vivek Tulpule, chief economist of the world’s third-largest mining company, said in London on June 29.


Singapore Contraction

Singapore’s GDP fell an annualized 1.1 percent in the three months through June from the previous quarter, when it climbed a revised 9.4 percent, the Trade Ministry said today. The median of 14 estimates in a Bloomberg News survey was for a 0.6 percent gain.

Also today in the Asia-Pacific region, the Bank of Korea reduced its 2012 economic-growth forecast for the second time this year, a day after it unexpectedly cut interest rates.

Elsewhere, Russia will refrain from reducing interest rates for a seventh month today, after a surge in inflation in June, according to economists surveyed by Bloomberg News. Spain and Italy will report inflation data today.

In the U.S., wholesale prices probably fell 0.5 percent in June from May, compared to a 1 percent drop the previous month, economists predicted.


Bloomberg News


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