China Economic Growth Slows Slightly

China’s economic growth slowed in the second quarter of 2010, official figures issued Thursday show, as stimulus spending continued to gradually wind down and controls on bank lending and property speculation began to be felt in the broader economy.

High Chinese growth with stable inflation could mean Asia’s economy is not too hot, or too cold. Dow Jones Newswires’s Mark Cranfield reports.

China’s gross domestic product, the value of all goods and services produced in the country, rose 10.3% from a year earlier in the second quarter, compared with the 11.9% growth of the first quarter, China’s National Bureau of Statistics said Thursday.

The extent of the slowdown was roughly in line with market expectations, which had centered on a 10.5% increase in the second quarter’s GDP.

China’s economic performance is increasingly closely watched around the world amid signs that waning recoveries in the U.S. and Europe may be undermining global growth.

With China clamping down on property speculation even as other major economies struggle to sustain growth, many investors are worried about the risk of a sharper slowdown in the months to come.
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“Overall we think we are going to see weaker data coming from China going forward. But let’s not be too pessimistic, the underlying growth drivers for China are still in place,” said Jinny Yan, an economist at Standard Chartered.

The second quarter’s slowdown had been long-anticipated by economists, and in itself may not be a cause for concern. But it may put more pressure on policy makers to reverse restrictions on the property market and find new ways to support growth, especially if growth continues to slow substantially in the second half.

China’s exports may soon show more impact from the euro-zone’s debt crisis, and most analysts say the government’s restrictions on home buying will lead to a further slowdown in construction.

But the relatively strong second-quarter figures point to the solid momentum China’s economy has going into the second half of the year.

Inflationary pressures appeared to ease in June, with the rise in China’s consumer price index slowing to a 2.9% rise in June from 3.1% in May, and coming in below forecasts of a 3.3% rise.

Although the government has said it is concerned about expectations of higher inflation getting entrenched, economists generally expect inflation to decline in the months ahead.

Prices of vegetables and other food items, which are key components of the CPI basket, have fallen recently.

China’s producer-price index rose 6.4% in June from a year earlier, the data showed, lower than the survey’s forecast of a 6.8% increase and May’s 7.1% rise.

Other data published Thursday were consistent with a general slowdown in economic activity, with growth in manufacturing and capital spending both easing.

“China’s inflation pressures are not as high as people expected,” said Bank of America-Merrill Lynch economist Lu Ting. “On the monetary front, the chances for a rate hike are now much smaller. We don’t expect a big move in monetary policy in the near future.”

The National Bureau of Statistics said in a statement that Beijing would continue with its current policy stances of an active fiscal policy and a moderately loose monetary policy. The domestic and international environment for growth is still complex, and there remain many challenges to economic recovery, it said.

Industrial production was up 13.7% in June from a year earlier, compared to economist expectations for a 14.9% rise and down from May’s 16.5% increase.

Fixed-asset investment in urban areas, China’s benchmark measure of capital expenditure, rose 25.5% in January-June period. That was down from 25.9% growth in the January-May period.

Economists had expected a 25.2% rise.

The China Securities Journal, a state-run paper, warned in an editorial on Thursday that growth in the second half may slow more than expected, and said China should refrain from further tightening its monetary and fiscal policies in the second half.