China's economic growth slows amid credit curbs

July 15, 2010 7:10:43 AM PDT
China's rapid growth is slowing as the impact of its huge stimulus fades and Beijing clamps down on a credit boom.

The world's third-largest economy expanded by 10.3 percent in the second quarter over a year earlier, down from the first quarter's explosive 11.9 percent growth, the National Bureau of Statistics said Thursday.

A slowdown could hurt China's trading partners and might dent a global recovery if it cuts demand for iron ore, industrial components and other imports. Global companies are looking to China to drive demand amid weak sales elsewhere.

"The speed of economic growth is declining fast," said economist Xing Ziqiang of China International Capital Corp. in Beijing. "Countries that export raw materials to China will feel a bigger impact from declining investment."

China rebounded quickly from the global downturn, powered by a 4 trillion yuan ($586 billion) stimulus and a flood of bank lending. But communist leaders worry about surging home prices and possible bad loans at state-owned banks. They have imposed curbs on lending and investment, key drivers of growth and demand for raw materials.

A statistics bureau spokesman, Sheng Laiyun, said despite the decline, growth is "very high" and within the target range. The government's growth target for the year is 8 percent, which analysts say China easily should achieve.

"A slowdown in the growth rate will benefit the economy because it will prevent it from growing too fast and being overheated," Sheng said at a news conference.

Sheng said lower growth also would help Beijing's effort to boost domestic consumption and reduce reliance on resource-intensive investment and exports to drive growth.

Other indicators show manufacturing activity, bank lending, auto sales and other areas all moderating from 2009's heady growth. June exports rose 35 percent over a year earlier but analysts expect Europe's debt crisis to cool global demand.

China's latest growth leaves it poised to pass Japan as the second-largest economy behind the United States. China reported 2009 output of $4.98 trillion, just behind Japan's $5.1 trillion. And China is growing much faster than its neighbor.

June inflation eased to 2.9 percent over a year earlier, falling back below the government target of 3 percent for the year after prices rose 3.1 percent in May.

Despite the credit clampdown, the International Monetary Fund raised its China growth forecast for this year from 10 percent to 10.5 percent this month. But some private sector analysts have cut their estimates.

Goldman Sachs lowered its forecast this month from 11.4 percent to a still robust 10.1 percent. CICC's Xing said he expects 9.5 percent growth this year after the full impact of Europe's debt crisis and Chinese investment curbs hit in the second half.

Thursday's data also showed investment still is growing faster than retail spending despite efforts to promote domestic consumption. Retail sales rose 18.2 percent in the first half but spending on factories and other fixed assets jumped 25 percent pace.

"Though we have this good start, we still have to be keenly aware of the volatile situation outside China and the many difficulties and challenges we face in this country," said Sheng, the statistics bureau spokesman.