Sat, May 12, 2012 - Page 10 News List

China’s economy slows, inflation eases

WARNING SIGNS:Beijing faces a big challenge — to spur growth while keeping inflation under control, as consumers feel the pinch with rising prices outstripping higher wages


China’s economy is slowing further, defying hopes it may have “bottomed out,” with data for last month showing sharper than expected declines in investment and industrial production.

Data released by the Chinese National Bureau of Statistics yesterday showed inflation also eased, to 3.4 percent last month from 3.6 percent the month before, giving the government greater leeway to ease policy to boost growth.

A reading of the latest data suggests more aggressive action may be needed to get the world’s second-largest economy back on track, economists said.

In particular, industrial production rose 9.3 percent from a year earlier last month, slowing from a nearly 12 percent increase in March.

“China’s economy is even weaker than thought, with industrial production growth back in single digits for the first time since the global financial crisis and electricity production flat lining,” Alistair Thornton of IHS Global Insight said. “We believe the government will step up efforts to stimulate the economy, even as genuine concerns remain regarding the very real possibility of over-stimulating.”

China’s economy grew 8.1 percent in the first quarter of the year, still a robust rate, but its slowest pace since 2009. It was below the previous quarter’s 8.9 percent, but above the government’s 7.5 percent target for the year.

China’s leaders face a challenge in keeping inflation under control, while spurring growth. Rising pressures from wages and other costs are squeezing businesses. Consumers are feeling the pinch, too, as already high prices outstrip rising incomes.

Other data reported yesterday showed investment in factory equipment and construction, so-called fixed-asset investment, rose 20.2 percent in the January-to-April period. That compared with a 25.4 percent increase a year earlier.

Investment in real estate climbed 18.7 percent, down from 34.3 percent growth in the first four months of last year and from 23.5 percent growth in the January-to-March period.

The figures came a day after China announced that its trade surplus widened last month as imports barely budged, sharpening fears the economy is not doing enough to stimulate domestic demand and counter a slowdown.

Already, there are signs that China’s slowdown is hurting demand for oil, industrial components and consumer goods at a time when US and European growth rates are weak.

Last year’s unexpectedly steep plunge in demand for China’s exports due to US and European economic woes prompted Beijing to reverse course and ease controls on bank lending to help struggling manufacturers.

Further easing measures are expected, with most analysts predicting the central bank would soon reduce reserve requirements for commercial banks.

Last month’s moderation in the consumer price index was aided by an easing in costs for food and housing. Food price inflation slipped to 7 percent from 7.5 percent in March.

Meanwhile, the producer price index of costs for manufacturers fell 0.7 percent. That largely resulted from falling commodity prices, but could ease future price pressures.

However, wages and rental prices are rising in the longer term, ANZ said in a commentary.

“We remain cautious on China’s inflation outlook. Price reforms will continue to add pressure to China’s structural inflation,” ANZ said. “For the foreseeable future, we expect to see significant increases in utility prices, such as water, electricity and fuel.”

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