Slowing China growth lifts stimulus
prospect By Robert M Cutler
MONTREAL -
China's headline economic growth increased at its lowest
quarterly rate in three years, according to
official data released at the weekend. Other
indicators, however, gave mixed readings, leaving the
prospect of further economic stimulus finely balanced.
Gross domestic product (GDP) increased
7.6% in the second quarter over the same period
last year, and 1.8% over the first quarter this
year. It is the sixth consecutive quarter that the
growth rate has declined year on year. The
government in March lowered its full-year GDP
growth target to 7.5%, a decline from the 8%
formal norm set in previous years stretching back
to 2005.
For years, a commonplace argument
has been that the Chinese
economy has to grow at
least 8% annually if sufficient jobs are to be
created to contain the risk of social unrest. In
the past year or so that number has been scaled
back to 7.5%. Official targets are also generally
understood to be figures with which the government
would be happy, and they are often exceeded by the
final statistics themselves. Thus the consensus
expects the economy to rebound in the second half
of the year, possibly even exceeding 8% growth in
GDP slightly for the entire year. By comparison,
in 2011 the economy grew 9.2% over 2010, and 10.4%
over 2009 in 2010.
Even so, the latest
data raised the prospect of the government taking
further steps to stimulate the economy. Premier
Wen Jiabao at the weekend said "momentum for a
stable rebound in the economy has not yet been
established" while "authorities would
'unswervingly' maintain and enforce property
controls so as to prevent prices from rising
again," Xinhua news agency reported.
Government efforts to curb property
speculation have led to price falls that have
continued in spite of an apparent recovery in home
sales, helping to hold down overall inflation. The
Consumer Price Index (CPI) inflation gauge for
June declined more than expected, to 2.2% year on
year, from 3%, 3.4%, and 3.6% respectively for the
three previous months, according to the National
Bureau of Statistics. The Producer Price Index
(PPI) was down 0.7% in June following declines of
1.4%, 0.7%, and 0.3% respectively for the three
previous months.
In March, the government
announced a target of 4% inflation for the year,
and the decline in inflation will facilitate
further monetary easing. The central bank may cut
interest rates as many as two more times this
year, China Daily quoted an economist at the State
Information Center as suggesting - it cut them
earlier this month for the second time this year -
and the reserve requirement rate as many as three
more times in addition to three cuts made since
last November.
The mainstream view is that
increased bank reserve requirements along with
lower interest rates have brought housing demand
back a bit and, interpreting that as a more
general indicator, that growth may be beginning to
stabilize. "Stable" is a key word for the regime.
Wen opined that the economy was now
operating at a "slower but more stable pace", but
still he called for its greater "vitality and
dynamism" and warned that "hardship" would
continue for some time even though "stabilization
policies are working".
However, Dong Tao
of Credit Suisse Group in Hong Kong made the point
to Bloomberg News that "[t]he question is not how
deep the economy falls, but how long it will stay
low," because "China needs structural reforms, not
just monetary or fiscal expansion."
The
Chinese authorities have already made it
abundantly clear that their stimulus plans target
China's own current economic performance profile
and are not designed specifically to promote
global growth as they were in 2008-09. Measures
introduced several months ago included tax and
bank interest rate cuts, as well as acceleration
of the approval process for infrastructure
construction (particularly subways, airports and
railroads).
Nevertheless, fixed-asset
investment continued at the lower level at which
it has run all year, with 20.4% year-on-year
growth in June, about average for the first six
months, after rates of 23.8% were registered in
2011 and 2010.
Growth in industrial
production in June fell from May's 9.6% level to
9.5% year on year, but bank loans increased
unexpectedly to 919 billion yuan (US$144 billion)
in June from 793 billion yuan in May, also beating
the 880 billion consensus estimate from a
Bloomberg News survey of specialists. A $63.4
billion trade surplus was posted in the second
quarter, far outstripping the first quarter's $670
million surplus, according to the General
Administration of Customs. Total exports were up
11.7% in June over the year earlier figure, while
imports rose 6.3%.
The Shanghai Stock
Exchange Composite (SSEC) index closed the week
down 1.7% at 2,186, its fourth consecutive weekly
decline. The present level is a little less than
2% higher than its close on January 5 this year,
which was the index's lowest level since March
2009. Below that, the next important support is at
2,101. Resistances to the upside currently show
themselves at 2,242 and 2,320. Technical
indicators at present predominate somewhat on the
downside in the short and medium term, with a bit
more ambivalence in the long term.
Dr
Robert M Cutler (http://www.robertcutler.org),
educated at the Massachusetts Institute of
Technology and The University of Michigan, has
researched and taught at universities in the
United States, Canada, France, Switzerland, and
Russia. Now senior research fellow in the
Institute of European, Russian and Eurasian
Studies, Carleton University, Canada, he also
consults privately in a variety of fields.
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