Chinese economy hits three-year low
Growth rate of 7.6% is worst since depths of
global financial crisis and could drag on countries supplying Chinese industry.
China's
economic growth has slowed to a new three-year low, dampening hopes it can make
up for US and European weakness, but analysts have said a rebound might be in
sight.
The world's
second-largest economy grew by 7.6% in the three months ending in June compared
with a year earlier, down from the previous quarter's 8.1%. It is the lowest
since the first quarter of 2009 during the depths of the global financial
crisis.
China's slowdown could
have global repercussions, especially at a time when the United States and
Europe are struggling. Lower Chinese demand could affect Asian economies that
supply industrial components to its manufacturing industry and exporters of
oil, iron ore and other commodities such as Australia, Brazil and African
nations.
Other indicators,
though, including strong June bank lending, which is closely tied to business
activity, suggest the low point of the decline might be past, analysts have
said. "The Chinese economy has already bottomed out in the first two
quarters," said Xiao Li, an economist at Industrial Bank in Shanghai.
"It is not
certain whether or not there will be a strong upward rebound. But at least the
economic growth rate will stop coming down."
The slump raises the
threat of job losses and political tension. The ruling Communist party is
trying to enforce calm ahead of a planned once-a-decade handover of power to
younger leaders.
China's export growth
has fallen steadily and consumer spending has weakened despite stimulus
measures that include two interest rate cuts since the start of June. The
government is pumping money into the economy through higher investment by
state-owned industry and more spending on low-cost housing and other public
works.
Quarterly growth was
in line with the government's official target of 7.5% for the year, which
private sector forecasters say China still is likely to achieve.
"The growth rate
of 7.6% is already an achievement because the economic situation facing China
has been complex and severe," said Sheng Laiyun, a government spokesman,
at a news conference. "We have seen tepid domestic and external
demand."
Sheng rejected
suggestions by some analysts that the slowdown might be deeper than reported
and that Beijing ordered companies to make the economy look healthier by
inflating data on electric power consumption, a key industrial indicator.
"I want to say right here they are wrong," Sheng said.
China's economic
growth has slown down for eight quarters, the longest slowdown since the
government began reporting such data in 1992, according Yu Bin, a cabinet
researcher. He said the previous record was six quarters.
The slowdown is due in
part to government controls imposed in 2010-11 to cool overheating and
inflation fuelled in part by Beijing's huge stimulus in response to the 2008
crisis. Chinese leaders reversed course last year and began easing controls
after global demand abruptly plunged.
The government is
moving cautiously after its 2008 stimulus pushed up inflation and spurred a
wasteful building boom. Authorities have said curbs imposed on building and
home sales to cool surging housing prices will remain in place, even though
pumping up the country's slumping construction industry offers a quick way to
boost growth.
Peter’s Comment
While the rest of the
world struggles the Chinese economy keeps marching on at just a slightly
reduced pace.
Even at the slower
growth rate of 7.6%, the Chinese economy is in spectacular shape and must be
the envy of many economies including the USA and the European Union.
However, there is a
popular belief that China’s success is putting people out of work, lowering
wages and forcing businesses to close in the western world. Some believe that
Chinese goods should be boycotted because of the low wages paid in China.
Those ideas are
misguided. In fact a boycott would force Chinese wages even lower.
On the other hand, if
we buy Chinese our demand will help raise wages in China and as Chinese people
become better off they will increase their spending with rest of the world.
China, with approximately
20% of the world’s population, is likely to achieve standard of living parity
with the rest of the world when it has 20% of the world’s production of goods
and services.
But where would the
rest of the world be if China’s economy was growing at only the 0-2% that has
been normal elsewhere for the last five years?
We should be thankful
that there is at least one strong economy to save us from an economic catastrophe.
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