Slowing growth rate 'not unexpected'

Data may indicate changing climate but fears of hard landing dismissed

Economic growth may be slowing, as recent data indicated, but fears of a hard landing are not justified as the slowdown was "within expectations" and will help recalibrate the economy, economists said.

Analysts have cut predictions for GDP growth after the release of a series of economic indicators last week. These forecast declining growth even after a three-year low of 8.1 percent in the first quarter.

"The situation is not good," said Wang Tao, chief China economist with UBS AG. The bank has lowered growth estimates for the second quarter to 8 percent, from 8.4 percent.

According to the National Bureau of Statistics, manufacturing activities were at their lowest levels in April since May 2009 as industrial production rose by 9.3 percent, while retail sales increased by 14.1 percent, the weakest in 14 months.

Fixed asset investment growth, the main driver of the economy, was at the slowest pace in a decade at 20.2 percent in the first four months. New property investment slowed to 18.7 percent growth from 23.5 percent in the first quarter.

Power output growth, a core measure of economic activity, slowed to less than 1 percent.

Fitch Ratings also maintained its prediction of the economy growing 8 percent this year, while ruling out a "hard-landing", according to Andrew Colquhoun, head of sovereign ratings for Fitch Asia Pacific.

"China is experiencing a policy-led economic slowdown in growth which was implemented by the authorities in response to the inflation pressure that emerged last year, and it seems to me well within the parameters of normal policy management," Colquhoun said.

"I don't expect China to have a hard landing ... I think the authorities will be happy to see growth slow somewhat to take the steam out of inflation," he added.

Colquhoun said he expected the authorities to be "broadly comfortable with a rate of growth of around 8 percent so long as there is no adverse impact on the labor market.

"But the key is what kind of growth you're getting in the next stage, will it still be investment led, or will it be more balanced development?" Colquhoun said.

Although the People's Bank of China last Saturday reduced the amount of cash banks are required to hold in reserve, which freed up more than 400 billion yuan ($63 billion) of liquidity, the move was considered more of a confidence booster than effective therapy.

"The government will have to issue more monetary and fiscal easing as export growth continues to weaken and the global economy still faces downside risks," Wang said.

Wang's estimates were echoed in a report by Agricultural Bank of China, which estimated that the growth rate would rebound in the third quarter, rather than in the second quarter as previously expected. The bank estimated that authorities may adopt more measures, such as interest rate cuts.

However, there are also analysts who are less pessimistic.

"The central bank had already taken (stimulus) action so the economy may soon start to recover," Huang Yiping, an economist and professor with Peking University, said.

"But as the growth target has already been lowered, and the employment situation remains smooth, there is no need for strong policy stimulus," Huang said.

Fixed asset investment, though, remains a key driver of the economy, and it is set to be below 25 percent this year for the first time in a decade, dragged down by a fall in both real estate and infrastructure investment, Andy Rothman, China macro strategist for CLSA Ltd, said.

Contact the writers at weitian@chinadaily.com.cn and huyuanyuan@chinadaily.com.cn

Cai Xiao in Beijing and Fu Jing in Brussels contributed to this story.