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China's economic growth cools to slowest since 2005

(Bloomberg)
Updated: 2008-07-17 19:25

China's economy grew at the slowest pace since 2005 in the second quarter, prompting the yuan's biggest drop in seven weeks on speculation the government will slow its advance to protect exporters.

Gross domestic product rose 10.1 percent from a year earlier, down from 10.6 percent in the first quarter, as exports weakened and the government curbed lending. Consumer prices rose 7.1 percent in June, slowing from 7.7 percent in May, the statistics bureau said Thursday in Beijing.

The yuan fell 0.2 percent against the dollar, paring a 7 percent advance this year that made it Asia's best performer. Some Chinese officials are pressing for slower currency appreciation to protect jobs as cooling global demand threatens to trigger a slump in shipments from the world's fastest-growing major economy.

"A slower pace of appreciation would mean breathing room for the export sector," said Jing Ulrich, JPMorgan's chairwoman of China equities.

The yuan traded at 6.8270 against the dollar as of 3:55 pm in Shanghai, the biggest drop since May 27.

GDP growth cooled for the fourth straight quarter. The median estimate of 18 economists surveyed by Bloomberg News was for a 10.3 percent expansion. The US economy grew 2.5 percent in the first quarter.

'Orderly Slowdown'

China's growth is still the fastest of the world's 20 biggest economies and is helping to sustain the global expansion this year as a housing slump and credit-market turmoil threaten to send the US into a recession.

"This is an orderly slowdown, not a dramatic one," said Kevin Lai, a Hong Kong-based economist with Daiwa Institute of Research.

The trade surplus for the second quarter narrowed 12 percent from a year earlier to US$58.14 billion as import costs climbed and US demand faltered.

Export prospects have deteriorated, with US Federal Reserve Chairman Ben S. Bernanke saying this week that the US faces "significant downside risks to the outlook for growth."

Rising prices, constraints on agricultural output, lagging rural incomes and global financial market turmoil are problems for China's economy, the statistics bureau said in a statement.

The Ministry of Commerce has urged China's cabinet to rein in currency gains and raise some export rebates, a ministry official said July 14, speaking on condition of anonymity.

"We'll Be Dead"

"We'll all be dead if the government doesn't increase tax rebates and slow the appreciation," Tang Zhenya, a salesman at Changshu Shengtian Knitting & Clothing Co. in Jiangsu province said Wednesday.

Most textile companies were unprofitable in the first five months of the year, Du Yuzhou, President of China Chamber of Commerce for Import and Export of Textiles said at an industry conference in Shanghai.

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