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Sat, Jul 17, 2004 - Page 12 News List

Q2 data shows China's growth cooling

SLOWDOWN The GDP figure was lower than economists had expected, but they disagree whether it's enough for the government to hold off on an interest rate hike


Cranes surround the SOHO Jianwai development in the heart of Beijing's central business district yesterday. The SOHO group is one of the most successful property companies in the country and its projects attract buyers from home and abroad. The property sector as a whole is suffering from government constraints on financing as part of continuing efforts to rein in the overheating economy.


China's second-quarter economic growth unexpectedly weakened, data showed yesterday, suggesting a raft of government measures to curb investment had reined in the world's seventh-biggest economy.

GDP was 9.6 percent higher than a year earlier. But some analysts said it had probably shrunk from the previous quarter.

The economy had been expected to grow 10.7 percent in the year through the second quarter, partly due to a rebound after SARS dampened output last year, according to a median forecast of eight economists.

"It is lower than we'd expected -- not dramatically so, and we don't think it argues for a hard landing," said JP Morgan economist Ben Simpfendorfer.

"But it does suggest that fixed-asset spending was considerably weaker than we'd expected in the final month [June]," he said.

The economy grew 9.8 percent in the year to the first quarter as the government limited investment in red-hot sectors such as property and autos and battled mounting inflationary pressures. Banks were ordered to hold more money in reserve, making less available for lending.

The State Statistical Bureau, which issued the data, said the overall performance of the economy had been good but cautioned that energy and transportation bottlenecks and rapid growth in fixed asset investment in some sectors were still troubling.

"The uncertainties and unhealthy factors existing in economic performance have been put under initial control," said bureau spokesman Zheng Jingping.

"However, we should be aware at the same time that those prominent problems existing in the economy have not been rooted out fundamentally," he said.

Consumer prices rose 5 percent in the year through June, as expected. But they fell 0.7 percent last month from May, suggesting the central bank may not need to resort to an interest rate rise, which would be the first in nine years.

China does not adjust its data for seasonal patterns, making month-to-month changes difficult to intepret.

China has avoided raising rates to cool growth partly due to fears it would make it harder for ailing state firms to repay their debts. Instead, authorities curbed lending and investment projects among other steps.

Central bank officials said earlier this year that China may need to raise rates if inflation hit 5 percent.

But since then growth in fixed asset investment, money supply and other indicators has slowed markedly and even sparked talk that Beijing may unwind some of the tightening measures soon.

Simpfendorfer said the consumer price index numbers made an argument for easing some credit-tightening measures while still raising interest rates, perhaps at the end of next month.

But DBS economist Chris Leung said: "I don't think they will increase interest rates and they will hold off on further tightening measures."

Zheng still needed to fine-tune its economic management in the second half of this year.

"Focus should be put on adjusting structure, deepening reform and changing the pattern of economic growth to ensure the stable, fast and coordinated economic development," he said.

Fixed-asset investment was up 28.6 percent in the first half from a year earlier. That compared with a rise of 43 percent in investment in the first-quarter.

Retail sales, which have gathered strength in recent months, were up 12.8 percent in the first half from a year earlier. Sales were up 10.7 percent in the first three months.

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