China’s leaders face new pressure to stimulate a slowing economy after growth decelerated for a second consecutive quarter, hurt by weak trade and efforts to cool a credit boom.
The world’s second-largest economy expanded 7.5% over a year earlier in the three months ending in June, down from the previous quarter’s 7.7%, data showed today. Growth in factory output, investment and other indicators weakened.
The fifth straight quarter of growth below 8% is “a clear sign of distress,” said IHS Global Insight analyst Xianfang Ren. With investment weak, she said growth might be “at risk of stalling”.
Analysts said growth could fall further in the current quarter, adding to pressure on communist leaders who took power last year and are trying to shift China from reliance on exports and investment to slower, more sustainable growth based on domestic consumption.
Chinese leaders are likely to respond by launching new stimulus to make sure growth hits their target for this year of 7.5%, said Credit Agricole CIB economist Dariusz Kowalczyk.
He said that might include weakening the Chinese currency to spur exports or pumping money into the economy through higher public works spending.
“We will seem some targeted measures to stimulate growth,” said Mr Kowalczyk. “They have to do something. Otherwise they will miss their target. And they cannot afford that, because this is their first year in power.”
A decline in Chinese economic activity could have global repercussions, denting revenues for suppliers of commodities and industrial components such as Australia, Brazil and south-east Asia.
Lower Chinese demand has already depressed prices for iron ore and other raw materials.
Despite the slowdown, communist leaders have expressed determination to stick to plans aimed at nurturing slower and more sustainable growth.
“Major indicators are within our targeted range but we face a complex situation,” said a spokesman for the statistics bureau, Sheng Laiyuan.
He said the government’s goal is to “promote restructuring” and make more of the “driving force” of the market.
Growth in factory output slowed to 9.3% for the first half of the year, down 0.2 percentage points from the first quarter’s rate, the statistics bureau reported.
Growth in investment in factories and other fixed assets in the first half declined by 0.8 percentage points to 20.1%. Retail sales in the first half rose 12.7% but that was down 1.7 percentage points from a year earlier.
“Further deceleration is possible if reforms and stimulus measures are delayed,” said Alaistair Chan of Moody’s Analytics in a report.
Chinese leaders have promised to launch reforms aimed at making the economy more productive and helping entrepreneurs but no major changes are expected until after a Communist Party meeting in the autumn.
Growth has also been dented by a crackdown on overly fast growth in bank lending. Government efforts to tighten lending controls caused a temporary shortage of credit in Chinese financial markets last month.
Further efforts to rein in lending, especially unregulated private lending, could hurt entrepreneurs who generate most of the country’s new jobs and wealth.
The ruling party’s 7.5% growth target for the year is stronger than forecasts for the US, Europe and Japan, but China’s weakest performance since 1991.
Finance Minister Lou Jiwei appeared to try to lower expectations last week when he told reporters in Washington that growth as low as 6.5% would be tolerable.
The International Monetary Fund cut its year growth forecast for China last week to 7.8% compared with 8.1% in April. The IMF’s forecast for 2014 was cut to 7.7% from 8.3%.
The Fund’s chief economist, Olivier Blanchard, said China was the country at the greatest risk of a “large decrease in growth”.
Earlier this month, Beijing promised changes in its government-run banking industry, including possible creation of privately owned lenders, to increase the supply of credit to entrepreneurs and more productive companies. It gave no timetable.