In the second quarter of the year, the Chinese economy grew at 7.6%, its lowest rate since early 2009, according to the latest numbers from the country’s National Bureau of Statistics. The slow down is said to be a result of weakening demand for exports, both in Asia and the West, as well as a downturn in the Chinese property market.
That compares with 8.1% for the same period in 2011 – one of the many idiosyncracies of Chinese reporting being its preference for year-on-year rather than quarter-on-quarter comparisons as issued in Europe and the USA.
So, does this weakening spell trouble ahead for the spectacular progress of the ‘bamboo economy’, named after the indigenous plant reported to grow as much as 100cm a day? Well, maybe.
On the one hand, the figure is substantially less than the oft-quoted 9% growth said to be required simply to maintain the status quo in China. On thee other, it’s pretty much in line with the government’s revised expectations for the whole of 2012 of 7.5%. In fact reducing the speed of growth has been an express intention of the Chinese authorities in the last year, eager to avoid a repeat of the bubble created by the injection of huge amounts of capital after the crash of 2008-2009.
All that money sloshing about caused a burst of inflation, especially in property prices, the unwinding of which is part of the reason for today’s reduced growth figures. Inflation has dropped back rapidly from last year’s high of 7% to just 2%.
The challenge for China is to get the right balance between stimulus and restraint. And glass-half-full types reckon that it is doing a pretty good job on that front, especially compared to the shambles in the eurozone. Recent moves to boost the stimulus element include reducing interest rates and encouraging bank lending, and they seem to be taking effect. The year to date investment figure is up from 20.1% in May to 20.4% in June. Many local analysts reckon that this presages a recovery in the second half of the year.
Compared to other nations, China is in an enviable position – 7.6% is not too shabby by the standards of other developed economies. Unlike European rivals, it also has more shots left in its locker with which to tackle the problem. But weak demand from struggling western markets for its exports looks unlikely to improve in the short term, and the once-in-a-decade change of leadership in the Chinese government which begins later this year also has the potential to destabilise the situation.
But it remains too soon to tell whether China – which, let us not forget, accounts for some 20% of global GDP – is heading for a hard or soft landing. Even the markets don’t know what to make of it – although the Shanghai Composite, China’s leading index, rose slightly on the news, it was soon back to pretty flat trading.