China's booming economy is displaying signs of a slowdown as consumption of energy declines and inventories rise, US investment bank Morgan Stanley said yesterday.
The economic slowdown will likely become more acute in six months as commodity prices continue to fall and the property sector undergoes an inventory liquidation, the bank's chief Asian economist Andy Xie (
"Property inventory is piling up and capex [capital expenditure] projects are slowing down, on declining commodity prices and vanishing speculative demand for property," Xie, based in Hong Kong, said in a report.
"Decelerating energy consumption reflects the economic slowdown," he said.
China has taken steps to cool down its torrid economic expansion but gross domestic product still grew by a faster-than-expected 9.5 percent in the first six months of the year, after expanding 9.4 percent in the first quarter.
Fixed asset investment, which largely reflects government spending on infrastructure, grew at 25.4 percent year-on-year.
This was some 3.2 percentage points lower than a year ago but way above the 16 percent target for the year.
According to Xie, it will take the Chinese economy at least two years to bottom out but the slowdown would generate some social benefits for the world's most populous nation.
"The recent overheating redistributed a substantial proportion of household income to businesses and governments through property, food and energy inflation," Xie said.
"As inflation turns into deflation, the share of household income in GDP should recover.
"The slowdown should be good for social stability."
Xie however said Chinese authorities should be on guard against speculators gambling on a fresh revaluation of the yuan currency, which was allowed to float against a basket of currencies after Beijing last month lifted the decade-old peg to the US dollar.
"China must be vigilant regarding financial stability during the ongoing economic consolidation," Xie said.
"The key is to prevent a sudden outflow of the hot money that has come in over the past three years to speculate on RMB [yuan] revaluation."
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