Chinese Economic Growth May Slow Down Further in Q2

There are clear signs that Chinese economy has been struggling. In May, trade, industrial production, investment and consumption were all performing worse than expected and in the last two weeks of June, the country has been on the brink of cash crunch as overnight interbank lending rate surged to record high.

In Q1 of 2013, the GDP expanded 7.7 percent yoy, down from 7.9 percent reported a quarter earlier. Domestic consumption was the biggest driver of growth, delivering 4.3 percentage point, capital formation contributed 2.3pp while exports generated 1.1pp.

From May 28th to June 28th, the SSE Composite has lost more than 15 percent as traders were worried that a cash crunch for Chinese banks could seriously domage growth prospects.

In May, industrial production rose less-than-forecast 9.2 percent from a year earlier, the fifth consecutive month below 10 percent. In the same month, exports edged up 1 percent yoy to $187.1 billion, the lowest growth since last July.

In spite of government pledge to stop property prices from rising, in May new house prices in 70 major cities grew by an average of 6 percent yoy, accelerating from 4.6 percent in April. Yet, recent rise in the interbank borrowing cost is likely to slow down the housing market bubble.

Consumer spending is rising, but not fast enough to offset weakness in other sectors. In May, retail sales growth slightly accelerated to 12.9 percent, but was still below the government's target of 14.5 percent for 2013.

Although in June inflation surged to 2.7 percent, it is still below the official target range of 3.5 percent. The People's Bank of China last lowered its benchmark interest rate in July 2012.

Anna Fedec
7/9/2013 10:51:43 AM