Chinese growth slows as commitment to 7.5% target questioned

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Economic expansion in China has slowed for the second quarter running, after year-on-year growth eased to 7.5 per cent in the April to June period.

This is down from the 7.7 per cent growth recorded in the opening three months of the year and adds to concerns that the world’s second largest economy is heading towards a so-called hard landing. The second quarter’s slowdown was expected by economists.

The Chinese government is aiming for economic growth of “about 7.5 per cent” in 2013 although some economists consider there to be a real risk this will be missed. This would be the first time the government has missed its annual growth target since the Asian financial crisis 15 years ago.

Almost every area of the the Chinese economy witnessed weaker performance in the second quarter, with industrial output, fixed-asset investment and exports all showing notable declines over the three-month period. However, quarter-on-quarter growth was 1.7 per cent, up from the 1.6 per cent in the first quarter, while retail sales saw a small rebound, suggesting the economy could be stabilising to some degree.

Recently, commentators have questioned whether the Chinese authorities are committed to the 7.5 per cent target after it resisted calls to bolster the economy with fresh stimulus measures.

Capital Economics chief Asia economist Mark Williams and China economist Qinwei Wang said in a note: “Confusion over where the government’s ‘bottom line’ for GDP growth lies suggests that officials may be less fixated on meeting the annual growth target than many outside observers think. Their main concern instead is probably employment.

“We would not be at all surprised to see growth drop below this year’s target of ‘about 7.5 per cent’ and, indeed, expect much weaker growth over the years ahead.”

Last year, China grew at a rate of 7.8 per cent, which was its worst annual performance in 13 years.

June’s Bank of America Merrill Lynch Fund Manager Survey shows global asset allocators regard a hard landing in China as their top tail risk, with 32 per cent of investors citing this and commodity collapse as their biggest fear.