Chinese recovery unlikely to spark global rebound: analysts
The world needs another hero as China's growth over three months ending in June marked its slowest since early 2009.
BEIJING—China’s economic growth fell to a three-year low, and analysts said a recovery will probably be too weak to pull the world out of its slump.
The world’s second-largest economy grew by 7.6 per cent from last year in the three months ending in June, its slowest since early 2009.
Analysts pointed to strong bank lending as a sign of a possible recovery in the second half, but slower growth in retail sales and factory output left them uncertain how fast or how vigorously the economy will improve.
The latest data dampen hopes China can make up for weak demand from debt-crippled Europe and the U.S., which is clinging to a sluggish recovery.
“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,” said economist Xiao Li at Industrial Bank in Shanghai.
The impact of lower Chinese demand would be most acute for Asian economies that supply industrial components to its vast manufacturing industry, as well as exporters of oil, iron ore and other commodities such as Australia and African nations. Chinese imports of steel, copper and oil have declined by volume over last year.
On Thursday, the Asian Development Bank cut its growth forecast for developing Asia to 6.6 per cent from April’s outlook of 6.9 per cent. It cited Europe’s financial crisis, the slow pace of U.S. recovery and a chill in China and India.
In a positive sign for China, a different measure of growth showed output in the latest quarter rose 1.8 per cent over the previous three-month period, up from the first quarter’s 1.6 per cent. Beijing began reporting such quarter-on-quarter growth—the system used by other major economies—only last year.
The economy “will begin to improve meaningfully from August onwards,” said JP Morgan economists Haibin Zhu, Grace Ng and Lu Jiang in a report.
The slowdown has raised the threat of job losses and political tension at a sensitive time for a ruling Communist Party trying to enforce calm ahead of its once-a-decade handover of power to younger leaders later this year.
Beijing has responded by cutting interest rates twice since the start of June, reducing fuel prices and pumping money into the economy through higher investment by state-owned industry and more spending on building low-cost housing and other public works.
Premier Wen Jiabao, China’s top economic official, said last weekend the economy faces pressure to slow further, suggesting Beijing might be considering new stimulus measures.
Quarterly growth was in line with the government’s target of 7.5 per cent for the year, which forecasters say China still is likely to achieve. That is far above Western levels but a marked drop from 2010’s explosive 10.5 per cent expansion.
Even after growth rebounds, it is unlikely ever to return to double-digit annual rates. Communist leaders are trying to reduce reliance on exports and investment and promote cleaner, energy-efficient growth based on technology development and consumer spending, which will produce slower gains.
In a potentially bad sign for China’s foreign suppliers, June import growth fell by half from May’s level to 6.3 per cent as factories facing weak orders cut back on raw materials purchases.
China’s rapid economic growth has decelerated steadily for eight quarters, the longest slowdown since the government began reporting such data in 1992, according to Yu Bin, a Cabinet researcher. He said the previous record was six quarters.
The slowdown is due in part to controls imposed in 2010-11 to cool overheating and inflation fueled 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.
“It is often forgotten that this recent slowdown has been an orchestrated one” to cool inflation, said Cameron Peacock, a market analyst for Australia’s IG Markets. “Mission accomplished. China now has the room to re-stimulate its economy.”
Some parts of Beijing’s response to the slump threaten to set back efforts to reduce reliance on exports and government investment and to nurture more self-sustaining growth driven by domestic consumption. Wen said this week that sustaining investment should be China’s priority, and acknowledgement that consumption is rising more slowly than planned.
China’s relative strength conceals severe pain in some industries. Some retailers say monthly sales have fallen by as much as half this year and the Chinese shipbuilding industry association says May orders were down by almost half from a year earlier.
AP researcher Zhao Liang contributed.