China economic growth slows to 9.5%

Agence France-Presse

Posted at Jul 13 2011 01:37 PM | Updated as of Jul 13 2011 09:37 PM

BEIJING - China said Wednesday its economy grew at a slower pace in the second quarter, highlighting the difficult task for Beijing as it battles to bring politically sensitive inflation under control.

Gross domestic product in the world's second largest economy grew 9.5% year-on-year in the second quarter, the National Bureau of Statistics said, as policymakers clamped down on bank lending to tame soaring prices.

The figure was higher than the 9.4% growth forecast in a poll of analysts by Dow Jones Newswires, but slower than the 9.7%posted in the first three months of the year and 9.8% in the fourth quarter of 2010.

In the first half, the economy expanded by 9.6% from a year earlier, the data showed.

The slowdown in growth comes amid concerns that the Asian powerhouse is heading for a hard landing which could have dire consequences for other countries still struggling to recover from the 2008 financial crisis.

"The external and internal environment for China's economic development is still rather complicated with numerous instabilities and uncertainties," NBS spokesman Sheng Laiyun said.

But he added that the economy maintained "good momentum" in the first half.

Industrial output from China's millions of factories and workshops rose 14.3% year-on-year in the first half, while fixed asset investment, a measure of government spending on infrastructure, rose 25.6%.

Retail sales were up 16.8% year-on-year in the first six months.

Some analysts say Beijing, anxious about inflation's potential to trigger social unrest in the country of 1.3 billion people, may have gone too far in tightening monetary policy as it struggles to bring prices under control.

"Slower growth and higher inflation has put the central government in a monetary policy quandary," IHS Global Insight economist Alistair Thornton said -- but adding that so far the economy was on a "soft-landing trajectory".

Inflation hit a three-year high of 6.4% in June -- much higher than the government's annual target of four percent -- as food prices soared more than 14%, data released at the weekend showed.

But the data showed gross domestic product was up 2.2% from the first quarter which Royal Bank of Canada senior strategist Brian Jackson said was evidence that "hard landing concerns are overdone".

"Overall it does highlight that it's been a pretty moderate slowdown since the start of the year, driven by domestic policy measures," Jackson told AFP.

The central bank has hiked interest rates five times since October, most recently last Wednesday, and increased the amount of money banks must keep in reserve numerous times, making it difficult for companies to access funding.

At the same time, there are growing concerns about massive local government debt burdens after credit ratings agency Moody's warned the proportion of sour loans could be much higher than previously forecast -- which analysts fear could derail the economy.

Chinese banks opened the credit valves in recent years to fund infrastructure projects as they heeded Beijing's call for nationwide efforts to spur economic growth following the global downturn.

"We think that China may have a bumpy landing. Signs are emerging that the economy might be moderating faster than expected," said Credit Suisse economist Tao Dong in a recent note.