China’s Economy Slowed a Bit in the 2nd Quarter

China’s economy, the second-largest in the world after that of the United States, expanded 9.7 percent year-on-year during the first quarter of 2011, and 9.8 percent in the last three months of 2010.

While the reading was strong compared with the expansion in the United States, Europe and Japan and was slightly firmer than analysts had projected, it underlined how much more moderate China’s expansion has become in recent months.

Much of the slowdown has been deliberately engineered by the authorities in Beijing, who have over the last year gradually tightened the spigot on the ample lending that has fueled growth, but also contributed to sharp rises in property prices and overall consumer prices. The central bank has also raised interest rates five times since last October, most recently last week.

The tightening has caused some concern that China’s economy could slow down more rapidly than intended, thus weakening what has become a critical pillar of growth for the entire world.

However, most economists believe that China is headed for a soft — rather than a hard — landing, and Wednesday’s robust figures appeared to support those expectations.

However, inflation remains stubbornly high, at least for now, with data from Saturday showing consumer prices rose 6.4 percent in June from the same month last year. The prices of some foodstuffs, like pork, have risen even more sharply.

Inflation has become a major concern for policy makers in Beijing, who worry that price rises could fuel discontent among the many millions of ordinary Chinese.

The government has repeatedly pledged to lower inflation, and a spokesman for the national statistics bureau repeated this mantra. “We should stick to our effort to control prices,” he said, according to The Associated Press.

The combination of slower growth and persistent inflation has put the government in a quandary, analysts say: While more aggressive tightening could mitigate inflation, it also risks stifling economic growth.

“The government’s desire to maintain growth by sustaining a healthy level of liquidity expansion is counterbalanced by the need to rein in inflation, in part caused by an abundance of liquidity,” Jing Ulrich, chairman of global markets for China at JPMorgan, wrote in a note on Wednesday.

Article source: http://www.nytimes.com/2011/07/13/business/global/chinas-economy-shows-signs-of-slowing-down.html?partner=rss&emc=rss