Tags: China | growth | economic | slow

China Government Adviser Predicts Second-Quarter Growth Below 7 Percent

Wednesday, 13 June 2012 07:12 AM EDT

China's annual economic growth could drop below 7 percent in the second quarter, an influential government adviser said in published remarks on Wednesday, the most pessimistic forecast of any government or private-sector economist.

Sub-7 percent growth would reflect the pace of the economy during the global financial crisis. China reported economic growth of just 6.6 percent in the first quarter of 2009.

A sharpening slowdown in the world's second-biggest economy galvanised policymakers last week into cutting interest rates for the first time since the global financial crisis — their boldest move yet to try to revive an economy facing its sixth straight quarterly slowdown.

"GDP growth in the second quarter could fall below 7 percent if there is no significant improvements in economic data for June," said Zheng Xinli, deputy head of the China Center for International Economic Exchanges (CCIEE) — a government think-tank in Beijing.

His comments were carried in the overseas edition of the People's Daily, the main newspaper of the ruling Communist Party. Zheng is also vice head of the economic committee of the Chinese People's Political Consultative Conference (CPPCC), which advises China's parliament.

Until 2009, he was deputy chief of the Chinese communist party's policy research office.

Zheng said year-on-year industrial output growth usually outpaces GDP growth by 3-5 percentage points. Industrial output rose 9.3 percent in April, the weakest pace in three years, and increased 9.6 percent in May.

So unless activity picks up in June, second-quarter GDP growth could be below 7 percent, Zheng argued.


Government and private-sector economists have gradually cut their forecasts for China's economy this year. Many had predicted the low point of China's slowdown would be in the first quarter, but they now expect it in the second quarter.

Analysts forecast in a Reuters benchmark poll in May that China would deliver second-quarter economic growth of 7.9 percent. They forecast full-year growth of 8.2 percent.

Since then, data for the month of May has suggested little pick up in the domestic economy and the central bank has cut rates by 25 basis points, underlining policymakers' concern.

Inflation hit a two-year low in May, retail sales rose at their weakest pace since February 2011 and fixed asset investment growth was the lowest in nearly a decade.

But exports and imports were stronger than forecast as U.S. demand helped offset weakness in Europe stemming from the region's debt crisis.

Zhu Baoliang, chief economist at State Information Centre, another top government think-tank, forecast second-quarter growth of 7.5 percent, cutting his earlier prediction of 7.8 percent. He expects the second quarter to be the bottom of the down cycle.

Peng Wensheng, chief economist at China International Capital Corp (CICC), the country's top investment bank, has cut his outlook on second-quarter growth to 7.3 percent from 7.8 percent.

"Policy loosening usually needs one to two quarters to impact the real economy, so we believe the loosening could show results in the third quarter," Peng said in a note to clients.

Data on the economy in June and the second quarter as a whole is due to be published in mid-July.

Despite the slide, most economists doubt China is heading for a hard landing, usually defined in a Chinese context as an abrupt fall in quarterly growth below 7-8 percent with big job losses, which could pose a threat to social stability.

"A hard landing is unlikely as there are no big employment problems that could lead to social unrest," Zhu said.


During the depths of the global financial crisis in 2008/09, when 20 million migrant workers lost their jobs as global trade dried up, Beijing announced a 4 trillion yuan ($628 billion) stimulus plan to revive double-digit economic growth.

Beijing has indicated it has no intention of repeating the huge stimulus this time around, partly because the economy is still trying to digest some of the problems it had spawned, including piles of local government debt and high property prices.

Today's labour market is also relatively tight and wages are rising.

Xia Bin, a former adviser to the central bank and now head of the financial research institute at the cabinet's think-tank, said last month that slowing growth alone does not imply a hard landing, as long as the job market and the banking sector remain stable.

The People's Daily also quoted Jia Kang, head of the Finance Ministry's think-tank, as predicting China's economic growth could bottom out in the second quarter.

"If everything goes smoothly, economic growth could hit a trough in the second quarter and, if the situation is worse, that may happen in the third quarter," Jia was quoted as saying.

Still, full-year growth is widely expected to be the weakest since 1999.

The Reuters poll produced a median forecast of 8.2 percent. Peng and Zhu forecast 8.1 percent.

The government warned earlier this year that it was prepared to allow a slowdown in the economy to 7.5 percent as it tried to focus growth more on domestic factors than the exports sector.

© 2024 Thomson/Reuters. All rights reserved.

Wednesday, 13 June 2012 07:12 AM
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