CHINA: country losing steam after strong H1
16.07.2010, 10:50The fast run of the Chinese economy was losing steam as GDP growth cooled substantially from 11.9% year-on-year in Q1 to 10.3% in Q2, according to the National Bureau of Statistics (NBS).
Although the pace was still in double-digit in Q2, the tone of slowdown was more stressed in June when the industrial output rose 13.7% year-on-year, cooling substantially from 16.5% in May. The deceleration of China's manufacturing sector was mainly the result of Beijing's exit from its stimulus, especially its tightening measures imposed on the real estate sector, and the slowing growth of the auto industry in Q2.
In June, raw steel output rose 9% year-on-year, as compared to the gain of 21% in May, and auto output growth decelerated from 27% in May to 18% in June, said the NBS.
While the domestic growth drives were losing strength, the external demand remained supportive as China's export hit a historical high of USD 137bn in June, surging 44% year-on-year, according to the China Customs. But it is widely expected that the debt crisis in Europe, China's largest trade partner, rolling out in Q2 will pinch China's export sector in H2.
Economists now have less optimistic estimates on the Chinese economy which has been the fastest growing major economy this year and is set to overtake Japan to become the world's second largest in 2010. Goldman Sachs, for example, slashed in July its forecast for China's GDP expansion in 2010 from 11.4% to 10.1%.
And experts are also expecting policymakers in Beijing to slant back to its loosening stance in H2. The good news was that inflation seemed to have peaked in Q2 as consumer price index edged down from 3.1% in May to 2.9% in June, which could lessen Beijing's worry that its aggressive stimulus could fuel up consumer inflation.
In fact, China might be already planning new actions. At a ruling party's meeting in early July, Chinese president Hu Jintao called for the acceleration of developing West China by improving infrastructure and the financial sector in provinces of Yunnan, Xinjiang, Tibet, etc. Hu defined the development of the resource-rich but less developed West China as a "key strategic move" for the Chinese government in the next decade, which may mean that West China would become the focus of China's "Phase II" stimulus.