China Growth Slows In The Second Quarter

By Mark Stone, Asia Correspondent

China's economy slowed in the second quarter of 2013 to 7.5% according to data released by the Chinese government.

The first quarter of 2013 saw economic growth at a level of 7.7%. The latest figure means growth slowed in all but two of the last 13 quarters for the world's second largest economy.

The slowdown to 7.5% was widely predicted and still represents an enviable growth rate. Analysts are split over whether the slowdown is a concern.

Goldman Sachs said the new figure represented "stable sequential growth at a low level". However, others said it represented a strained system.

"As of now, China's GDP has been staying under 8% for five straight quarters, a clear sign of distress. "said Xianfang Ren, an economist with IHS Global Insight in Beijing

"We are especially concerned about the rather significant downslide of investment growth, led by real estate investment. Construction sector could see lots of headwinds coming forth in the second half, if there is no marked change in policy course." she said.

China realised that it cannot rely on exports to maintain growth

The Chinese government announced the latest figure at a Beijing news conference. Officials defended the country's economic policies and insisted that they would meet their full year growth target for 2013 of 7.5%.

"Some measures, including the intensified property tightening campaign, new rules to curb misuse of public funds … will inevitably have some impact on growth in the short term, but they will benefit our economy in the long run," Sheng Laiyun, spokesman for the National Bureau of Statistics, said.

However, some analysts predict that by 2014 the GDP figure could dip below 7%.

"We downgraded our GDP growth forecast to 7.3% from 7.8% for 2013 and to 6.9% from 7.5% for 2014," Chen Shao, from Macquarie Economic Research, said.

If the Chinese government misses its annual growth target at the end of this year, it will be the first time it has done so since the financial crisis in Asia 15 years ago.

The leadership in China has said for many years that their goal is to fully rebalance their economy away from an over-reliance on exports - which have slowed markedly - and boost domestic consumer spending.

To achieve this, a slowdown in the short to medium term is inevitable but it requires certain reforms.

China has grown hi-tech businesses on knowledge built from foreign firms

It is not clear to what extent the Chinese government will push forward reforms or opt instead for a process of 'fine-tuning'.

According to official Chinese figures, which are not open to examination, the country's retail sales rose 13.3% in June compared with the same month last year.

Retail sales, widely seen as a key indicator for consumer spending, also increased 12.7% between January and June 2013, and China's industrial production rose 8.9% between in the year to June 2013.

Increased spending on infrastructure is a key tool to prompt economic growth. It is measured through fixed asset investment which rose 20.1% in the first six months of 2013 compared with the same period last year. 

"Discussions with people out in the provinces suggests that many expect a stimulus to start now and there is a genuine acceleration in infrastructure spending" Jeremy Stevens, an economist with Standard Bank in Beijing, said.

"(There are) many announcements about how the government will accelerate 'slum renovation', water projects, and roads," he said.

"Indeed, steel demand from infrastructure has outstripped demand from housing, which is a new thing this year. There is also the gargantuan urbanisation program, still in gestation."

China has seen a rise in worker disputes amid a rapid growth over 20 years

Managing expectations seems to form a large part of the Chinese government's economic game-plan.

Last Thursday, the Chinese Foreign Minister Lou Jiwei said that a growth rate of 6.5% this year would not be a 'big problem'. He said the target was 7%.

China's Xinhua News Agency later claimed that Mr Lou said the target was 7.5%, fuelling confusion over what the government really believes is a tolerably low rate.

At Monday's Beijing news conference, officials said that the government's bottom line for tolerating slower growth "is definitely changeable, it won't be fixed at one point".

"Two years ago, most would have never believed that panic wouldn't have swept the government with such a low print," Standard Bank's Jeremy Stevens said.

"Yet, fast-forward to 2013 and 7.5% is an achievement. Remarkable."

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