December 11, 2019

China’s G.D.P. Growth Slows as Government Changes Gears

HONG KONG — China’s new tough-love approach to overhauling its giant economy showed through in lackluster economic data released on Monday, underlining just how rapidly growth in the once-sizzling economy has cooled.

China’s economy grew 7.5 percent in the second quarter of this year, compared with the same period a year earlier, the National Bureau of Statistics reported. The figure was in line with economists’ expectations, but represented a progressive slowdown from 7.7 percent gross domestic product growth in the first quarter and 7.9 percent in the final three months of 2012.

Industrial output data for June, also released Monday, came in weaker than forecast, with an increase of 8.9 percent from a year earlier — down from 9.2 percent in May. The growth in fixed asset investment in urban areas, another key measure of economic activity, also slowed slightly during the first six months of the year.

On the upside, however, retail sales came in better than expected, rising 13.3 percent in June from a year earlier. The May reading was 12.9 percent.

The slowdown in the world’s second-largest economy after the United States has left some analysts concerned that China could lose yet more steam in the coming quarters, denting the ravenous demand for goods that has been a key support to global growth at a time when Europe and the United States are struggling to grow.

Xianfang Ren, an economist at IHS Global Insight in Beijing, wrote in a research note on Monday that China’s growth was “at risk of stalling,” and that “the downside risk for growth has become much more elevated now than a few months ago.”

Increasing signs that China is faltering have prompted a number of economists to downgrade their forecasts for the country. Zhang Zhiwei, China economist at Nomura, lowered his growth forecast for 2014 from 7.5 percent to 6.9 percent following Monday’s data release (he continues to project 7.5 percent growth for this year).

Officials in Beijing, however, continued to signal on Monday that they were comfortable with the slowdown, which comes as the country is preparing for a major structural overhaul designed to put future expansion on a more sustainable and balanced footing albeit at the price of more moderate growth.

Sheng Laiyun, the spokesman for the statistics bureau, said on Monday that the latest data were within the bounds of official expectations, though he acknowledged headwinds were buffeting the economy.

“Viewed over all, national economic performance in the first half of the year was generally stable, and the main indicators remain within the reasonable bounds for the annual forecast,” Mr. Sheng said during a news conference broadcast live on Chinese television. “But economic conditions are still complex and changeable.”

To a large degree, China’s recent cooling has been engineered by the authorities in Beijing, who are trying to steer the economy from an increasingly outdated growth model toward expansion that is more productive and sustainable.

While this slowdown has been happening for more than two years, a flood of comments from policy makers in recent months has made it increasingly clear that the new leadership that took the helm in March is serious about tolerating significantly slower growth for the foreseeable future in return for the longer-term gains of a more balanced economy.

Evidence of China’s cooling could prompt some limited policy shifts aimed at supporting especially pressured parts of the economy, analysts said. On Monday, for example, the governor of China’s central bank, Zhou Xiaochuan, and other officials said the government would extend more support to small businesses as part of its efforts to ignite new sources of growth.

Speaking at a conference about small business policy, Mr. Zhou outlined the challenges confronting policy makers.

“Currently, domestic and external economic conditions are unusually complicated, there are quite a number of destabilizing and uncertain factors, and the downward pressures on the economy are quite considerable,” Mr. Zhou said, according to a transcript of his comments on the Chinese government’s main Web site.

Still, few analysts expect the government to revert to heavy-hitting stimulus measures of the kind implemented after the financial crisis.

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Inflation Slows in China on Drop in Pork Prices

HONG KONG — Consumer prices rose less than expected last month in China as the unappetizing and widely televised spectacle of thousands of dead pigs floating upstream of Shanghai helped push pork prices down sharply.

The National Bureau of Statistics announced that consumer prices were 2.1 percent higher in March than a year ago. Prices had been 3.2 percent higher in February.

Pork is a staple of the Chinese diet and its price has long been such a significant component of the country’s consumer price index that it can influence overall inflation. Pork prices tumbled 5.5 percent last month in China from a year earlier, the National Bureau of Statistics said.

Factories and other producers also faced falling prices last month. Producer prices in China were down 1.9 percent in March from a year earlier, compared with a year-on-year decline of 1.6 percent in February.

Chinese policymakers have been struggling with two intertwined problems relating to inflation.

They allowed banks to engage in a massive expansion of lending and off-balance sheet credit last autumn to reverse an economic slowdown. That expansion of credit fanned fears of inflation that has already triggered sharp appreciation in real estate prices in recent months, prompting the government to renew warnings about problems of housing affordability.

But while asset prices may be rising, goods prices have stayed weak as many industries still face overcapacity. Companies have been unable to raise prices, often making it hard for them to make regular payments of interest and principal on their debts.

Manufacturers in China say that while the cost of materials like steel has stabilized or even fallen, wages continue to increase.

“Raw material prices have so far been stable, but we have had to increase worker wages by 20 percent,” said Kevin Mao, the export business manager at the Zhejiang Zhongli Group Company Ltd., a manufacture of bicycle and motorcycle locks in Wenzhou in east-central China. “All the other factories in our area have been doing similar adjustments to their respective worker wages as well.”

Randall Liu, a sales executive at the Xiamen Tawa Enterprise Company Ltd., a maker of wine sacks and sleeping bags in Xiamen in southeastern China, said that weak demand for exports made it hard to raise prices so as to cover wage increases.

“We are only able to transfer a portion of our cost increases to our end customers, so we do take a hit on our margin,” he said.

Usha C.V. Haley, the director of the Robbins Center for Global Business and Strategy at West Virginia University, said in a speech in Hong Kong on Monday that industrial overcapacity was likely to persist in China given numerous corporate subsidies provided by the national and provincial governments. “They do want to maintain social stability and create jobs,” and so are unlikely to reduce subsidies, she said.

Chinese and World Health Organization officials said on Monday that they had not documented any evidence that pigs have been dying from a recent outbreak of H7N9 avian influenza, although an investigation into the deaths continues.

Mysterious hog deaths are not the only reason for the price drop in March. The price of pork tends to follow long cycles in China that lag animal feed prices. When feed prices are high, farmers raise fewer pigs, which tends to push pork prices up and feed prices down. The cycle then reverses itself as farmers rush to raise more hogs before feed prices bounce up again.

Pork prices were little changed in February, sustained by demand during Chinese New Year, but had fallen sharply before then. Many economists had expected pork prices to begin strengthening this spring, however, before the carcasses began showing up near Shanghai.

The drop in pork prices meant that overall consumer prices for all food only rose 2.7 percent in March from a year earlier, the National Bureau of Statistics said. Food prices had been up 6 percent in February.

The National Bureau of Statistics has scheduled for next Monday the release of a long list of other economic statistics, including economic output during the first quarter of this year.

Hilda Wang contributed reporting.

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Rise in Chinese Currency Draws Attention

HONG KONG — China’s currency has staged a small but unexpected rally in currency markets this week, as the country’s central bank has allowed it to rise 0.72 percent against the dollar, with most of the move coming Wednesday and Thursday.

The State Administration of Foreign Exchange, which is part of the central bank, fixed the initial trading value Thursday morning below 6.4 renminbi to the dollar for the first time in the modern history of the currency.

Economists and traders interpreted the new trading value, 6.3991 to the dollar, as a signal that the central bank might be willing to tolerate a slightly faster rate of appreciation against the dollar, something the United States and other big industrial nations have long pressed China to do.

Daniel Hui, a senior foreign exchange strategist at HSBC, said in a research note that the recent movement in the daily fixing of the renminbi “indicates something has changed — the question is why, and if it will last.”

Allowing the renminbi to strengthen can help China fight inflation, by making imports cheaper. But a stronger renminbi can also hurt exports and employment at China’s many export-oriented factories by making Chinese goods more expensive in foreign markets.

The government’s National Bureau of Statistics announced Tuesday that inflation in consumer prices had reached 6.5 percent in July, the highest level in three years. At the same time, China’s exporters are showing unusual strength despite economic weakness in the West.

China’s General Administration of Customs announced Wednesday that exports were up 20.4 percent in July from a year earlier, more than most economists had expected, producing a trade surplus of $31.5 billion, the country’s largest in more than two years.

But any sustained acceleration in the appreciation of the renminbi could bring greater speculative inflows of money to China. As a result, many economists have been predicting that China may soon allow the currency to trade in a wider band each day around the initial fixing, which is done in Shanghai. Greater volatility makes it harder for speculators to borrow money to put bets on a rising renminbi.

The Administration of Foreign Exchange sets an initial trading value each day and then keeps the currency within a tight range around that value through the day by buying dollars, frequently on a large scale, and selling renminbi. In theory, the currency can vary during the day by as much as 0.5 percent, but the government has tended to keep the daily trading in a much tighter range, often less than 0.1 percent.

China’s foreign exchange reserves swelled by $350 billion in the first half of this year — equal to one-ninth of the country’s economic output in the period — mostly because of this currency market intervention. The Administration of Foreign Exchange also earns interest on its reserves, which totaled $3.2 trillion at the end of June.

Bettina Wassener contributed reporting from Hong Kong, and David Jolly from Paris.

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