Bloomberg News

China’s Growth Slows to 9.5% as Wen Targets Inflation

July 13, 2011

(Corrects GDP number in first paragraph.)

July 13 (Bloomberg) -- China’s economy grew at a slower pace last quarter, a moderation that may ease inflation pressures in the world’s second-biggest economy.

Gross domestic product expanded 9.5 percent from a year earlier, the statistics bureau said in Beijing today, after a 9.7 percent gain in the first quarter. That compared with the median 9.3 percent estimate in a Bloomberg News survey of 18 economists. Industrial production rose a more-than-estimated 15.1 percent in June, the agency said.

Monetary tightening that has pared the pace of the nation’s expansion may also validate economists’ forecasts for inflation to ease in the second half after surging to the fastest pace in three years last month. Premier Wen Jiabao said yesterday that stabilizing prices remains the nation’s top priority, while officials also aim to avoid “big fluctuations” in growth.

“Slower growth would soften inflation pressures,” Ken Peng, senior economist for China at BNP Paribas SA, said before the report.

The economy expanded 2.2 in the second quarter from the first three months of the year, the statistics bureau said, after a previously reported 2.1 percent gain in the January-to- March period.

China’s government may be wary of adding to five interest- rate increases since mid-October as a faltering U.S. economy and Europe’s spreading debt crisis threaten export demand. Moody’s Investors Service yesterday cut Ireland’s debt rating to junk and soaring bond yields have signaled that the contagion could spread to Italy.

Investment, Retail Sales

Fixed-asset investment, excluding rural households, rose 25.6 percent in the first half from a year earlier, today’s report showed. Retail sales expanded 17.7 percent last month, exceeding a median analyst estimate of 17 percent.

The expansion in industrial output compared with the median 13.1 percent gain in a Bloomberg survey.

While the global economy is increasingly dependent on China’s demand as the U.S. labor market deteriorates, investors are concerned that tightening measures will choke off growth. The Shanghai Composite Index declined 10 percent from its April high through yesterday, while yuan forwards indicate reduced expectations for gains in the currency against the dollar.

Signs of a slowdown have spanned weakness in imports, a manufacturing index falling in June to the lowest level since February 2009, and carmaker General Motors Co. saying that sales may be at the low end of a forecast. At the same time, lending exceeded forecasts last month and growth in M2, the broadest measure of money supply, rebounded.

Inflation Target

Inflation has breached the government’s 4 percent ceiling every month this year, with consumer prices rising 6.4 percent in June from a year earlier, the most in three years. Pork, a Chinese staple, rose 57 percent and accounted for more than a fifth of June’s overall inflation rate.

The People’s Bank of China has raised the one-year lending rate to 6.56 percent and the one-year deposit rate to 3.5 percent, announcing the latest increases on July 6. The nation’s biggest banks are required to set aside 21.5 percent of deposits as reserves, up from 17 percent in November, locking up cash that could fuel inflation.

Ding Shuang, a senior economist at Citigroup Inc. in Hong Kong who previously worked at China’s central bank, said last week that he expects inflation to slow after this month. UBS AG, sees price gains remaining above 6 percent in July before moderating towards 4 percent at the end of the year.

--Victoria Ruan, Zheng Lifei. With assistance from Ailing Tan in Singapore. Editors: Paul Panckhurst, Nerys Avery

To contact Bloomberg News staff on this story: Victoria Ruan in Beijing at vruan1@bloomberg.net; Zheng Lifei in Beijing at lzheng32@bloomberg.net.

%CNY

To contact the editor responsible for this story: Paul Panckhurst in Hong Kong at ppanckhurst@bloomberg.net


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