China struggles to stem ‘slowdown’

BEIJING: China’s economic growth is forecast to be the weakest since the global financial crisis in the second quarter, which together with a stock market rout raises pressure on authorities to do more despite little pay-off so far from a run of stimulus steps.

Data confirming China lost more momentum in the June quarter would do little to reassure investors reeling from a sharp plunge in shares over the past month, and analysts are wary about China’s outlook given a weak property market, erratic global demand and fears of more losses in its wild stock market.

A poll of 52 economists found annual GDP growth was expected at 6.9 percent in the April-June quarter, down from 7 percent in the first quarter and the weakest for the world’s second-largest economy since early 2009, when it tumbled to 6.6 percent.

A massive stimulus package pulled China out of the slump then, but at a cost of saddling local governments with a mountain of debt that is now a major economic risk and a limit on what the government can do to spark activity.

“We have yet to see any signs of stabilisation or recovery, but expect growth to improve slightly in the second half due to policy measures,” said Xu Gao, chief economist at Everbright Securities in Beijing.

“Investment needs to be quickened. Monetary policy is likely to stay loose, seeking to channel more credit into the real economy, because low short-term interest rates have limited impact on the real economy but may fuel stock market bubbles.”

Before the stocks fell sharply in June, they had more than doubled in a year, fuelled by cheap credit.

Generally markets do not expect much surprise from China’s GDP numbers. The March quarter was the 15th straight quarter where the number matched or was very close to the market consensus, as economists have molded forecast to anticipate the official line.

The highest forecast in the poll was 7.4 percent from Julian EvansPritchard at Capital Economics, who said he expected the financial sector, propelled by surging stock trading volume, to support growth.

Evans-Pritchard stressed that his estimate is just for the official figure.

“I think the real actual growth is probably quite a bit lower, probably somewhere between 5 and 6 percent,” he said. The government has to reshape the economy to be more domestic demand driven, which would deliver slower but more sustainable growth. – Reuters