//
you're reading...
Finance & Economy

China’s economy stumbles in May, growth seen sliding in Q2


A construction worker looks at Pudong financial district as he waits to cross an avenue in Shanghai

A construction worker looks at Pudong financial district as he waits to cross an avenue in Shanghai

Risks are rising that China’s economic growth will slide further in the second quarter after weekend data showed unexpected weakness in May trade and domestic activity struggling to pick up.

Evidence has mounted in recent weeks that China’s economic growth is fast losing momentum but Premier Li Keqiang tried to strike a reassuring note, saying the economy was generally stable and that growth was within a “relatively high and reasonable range”.

China’s economy grew at its slowest pace for 13 years in 2012 and so far this year economic data has surprised on the downside, bringing warnings from some analysts that the country could miss its growth target of 7.5 percent for this year.

“Growth remains unconvincing and the momentum seems to have lost pace in May,” Louis Kuijs, an economist at RBS, said in a note. “The short-term growth outlook remains subject to risks and we may well end up revising down our growth forecast for 2013 further.”

Exports posted their lowest annual growth rate in almost a year in May at 1 percent, exposing a more realistic picture of trade following a crackdown by authorities on currency speculation disguised as export trades to skirt capital controls, which had created double-digit rises in export growth every month this year even as world growth stuttered.

May exports to both the United States and the European Union – China’s top two markets – both fell from a year earlier for the third month running.

Imports fell 0.3 percent against expectations for a 6 percent rise as the volume of many commodity shipments fell from a year earlier.

The volume of major metals imports, including copper and alumina, fell at double-digit rates. Coal imports fell sharply.

“The trade data reflects the sluggish domestic and overseas demand, signaling a slower-than-expected recovery in the second quarter,” said Shen Lan, an economist at Standard Chartered bank in Shanghai.

A government factory survey of purchasing managers and a similar poll sponsored by HSBC, both issued earlier this month, showed export orders falling in May, suggesting the outlook remained grim.

Inflation, bank-lending growth and investment were below expectations in May, while factory output and retail sales rose around the same pace as in April.

China’s consumer inflation slowed to 2.1 percent, the lowest in three months, while producer prices (PPI) fell 2.9 percent, the lowest since September. A Reuters poll had forecast consumer inflation at 2.5 percent and factory-gate prices down 2.5 percent. “The inflation data showed China’s economic growth continued to slow down. Second-quarter growth is probably even slower than the first quarter. In particular, the PPI data showed very weak demand,” said Jianguang Shen, chief China economist at Mizuho Securities Asia in Hong Kong.

Central bank data showed Chinese banks made 667.4 billion yuan ($109 billion) in new loans in May, below market expectations of 850 billion yuan and down from April’s 792.9 billion yuan.

M2 money supply rose 15.8 percent from a year earlier, slightly below a median forecast of 15.9 percent, while total social financing, a broad measure of cash in the economy, was 1.19 trillion yuan versus 1.75 trillion yuan in April.

Retail sales, fixed-asset investment and industrial output met expectations, rising 12.9 percent, 20.4 percent and 9.2 percent from a year earlier, respectively.

RATES AND OTHER REMEDIES

Economic growth slipped to 7.7 percent in the first quarter, down from 7.9 percent in the previous quarter. Both the International Monetary Fund and the Organization for Economic Co-operation and Development cut their forecasts for China’s economic 2013 economic growth in May, to 7.75 percent and 7.8 percent, respectively.

But the further loss of momentum in the April and May could prompt the central bank to try to give the economy a lift, said Jian Chang, China economist for Barclays in Hong Kong.

“We had expected an L-shaped economic recovery in China and that the growth would stabilize at around 7.9 percent,” Chang said.

“We now think China’s growth will stabilize at around 7.6 percent (this year). The possibility for the central bank to cut interest rates is now rising,” Chang said.

However, government economists from top think-tanks in Beijing told Reuters this week that the new leadership of President Xi Jinping and Premier Li will tolerate quarterly growth slipping as far as 7 percent year-on-year before looking to lift the economy, focusing on economic reforms rather than short-term stimulus.

Li was quoted by state television as saying that China’s economy was generally stable, while China Central TV reported that Xi told U.S. President Barack Obama during his visit to the United States that “we are confident of maintaining long-term sustainable economic growth”.

He acknowledged China was at a “critical moment of economic restructuring” but that it would bring “enormous” potential, the TV said.

Cutting interest rates would be a difficult decision for the central bank for fear that providing cheaper credit could exacerbate a rise in property prices, which policymakers have been trying to contain.

“Property prices will jump if it cuts rates as recent government cooling measures have not achieved desired results,” said Tang Jianwei, senior economist at Bank of Communications in Shanghai.

“And cutting rates may not be effective in slowing speculative money inflows, which are mainly driven by expectations of yuan appreciation.”

Most economists agree however that the government will avoid major stimulus along the lines of its 4 trillion yuan package unleashed in the global financial crisis in 2008. It sparked a lending boom, which fuelled a property bubble and left local governments under a pile of debt.

The new leadership is keen to push economic restructuring towards domestic consumption and away from reliance on exports and investment for growth.

Sources told Reuters in May that a consensus had been reached among top leaders that reforms would be the only way to put the world’s second-largest economy on a more sustainable footing.

Source: Reuters “China’s economy stumbles in May, growth seen sliding in Q2”
 

About chankaiyee2

Author of the book "Tiananmen's Tremendous Achievements" about how with the help of Tiananmen Protests, talented scholars with moral integrity seized power in the Party and state and brought prosperity to China. The second edition of the book will be published within a few days to mark the 25th anniversary of Tiananmen Protests All the parts in the first edition remain in the second edition with a few changes due to information available later and better understanding. There are also some changes for improvements of style. The new parts are Chapters 12-19 on events in China after the first edition was published: The fierce power struggle for succession between reformists and conservatives; Xi Jinping winning all elders’ support during his mysterious disappearance for 2 weeks in early September, 2012; and Xi Jinping Cyclone. Chan Kai Yee's new book: SPACE ERA STRATEGY: The Way China Beats The US An eye-opening book that tells the truth how the US is losing to China. The US is losing as it adopts the outdated strategy of Air-Sea Battle while China adopts the space era strategy to pursue integrated space and air capabilities: It is losing due to its diplomacy that has given rise to Russian-Chinese alliance. US outdated strategy has enabled China to catch up and surpass the US in key weapons: Hypersonic weapons (HGV) that Pentagon regards as the weapon that will dominate the world in the future. Aerospaceplane in China’s development of space-air bomber that can engage enemy anywhere in the world within an hour and destroy an entire aircraft carrier battle group within minutes. Anti-satellite (ASAT) weapons, anti-ASAT weapons, stealth aircrafts, drones, AEW&C, etc. The book gives detailed descriptions of China’s weapon development based on information mainly from Chinese sources that the author monitors closely. U.S. Must Not Be Beaten by China! China is not a democracy. Its political system cannot prevent the emergence of a despotic leader or stop such a leader when he begins to bring disasters to people. A few decades ago, Mao Zedong, the worst tyrant in world history did emerge and bring disasters to Chinese people. He wanted to fight a nuclear war to replace capitalism with communism but could not bring nuclear holocaust to world people as China was too weak and poor at that time. If a despot like Mao Zedong emerges when China has surpassed the US in military strength, world people will suffer the misery experienced by Chinese people in Mao era. China surpassing the US in GDP is not something to worry about as China has the heavy burden to satisfy its huge population, but China surpassing the US in military strength will be world people’s greatest concern if China remains an autocracy. US people are of much better quality than Chinese people. What they lack is a wise leader to adopt the correct strategy and diplomacy and the creative ways to use its resources in developing its military capabilities. I hope that with the emergence of a great leader, the US can put an end to its decline and remain number one in the world. China, US, space era strategy, air-sea battle, space-air bomber, arms race, weapon development, chan kai yee

Discussion

No comments yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

China News

China News is not affiliated in any way with any publication in China or anywhere else.

Enter your email address to receive an email each time an article is published, or join our RSS feed. 100% FREE.

Join 3,706 other followers

Want to write for China News?

Read “Contributor Guidelines” above to join our team of 76 contributors. Write news or opinion about issues in China, or post photos and video. Promote your own site.

Recent Posts

China News Articles Have Been Featured In:

%d bloggers like this: