July 13, 2012
China's factories aren't growing as fast as before. Photo: Reuters
China's economic growth eased to its slowest pace in about three years as construction fell in the key housing sector. The dollar and stocks rose, though, as the numbers were better than many had feared.
The world's second-biggest economy expanded at an annual pace of 7.6 per cent in the June quarter, shy of the 7.7 per cent pace tipped by economists. It was the sixth straight quarterly slowdown.'
Commonwealth Bank currency strategist Joseph Capurso said investors were bracing for wose news. ‘‘It’s actually pretty close to market expectations,’’ he said.
The Australian dollar perked up on the release of the closely watched figures. It was recently buying about $US1.016, up from $US1.013 just prior to the release. Local stocks surged about two-thirds of one per cent - equivalent to about $8 billion in value - on the news before paring gains.
China is Australia's largest export market. The strength of China's economy, particularly its constuction sector, helps set global commodity prices and therefore, the fortunes of Australian mining companies.
Investors also expect Chinese authorities to act to prevent the economy being slowed too much from headwinds such as weakening global growth. The government is in the midst of a once-in-a decade leadership change as President Hu Jintao makes way for Xi Jinping at the top of the Communist party.
Big miners, BHP Billiton and Rio Tinto, both rose on the China growth news. In recent trading, BHP shares were up 1 per cent, while Rio was about 0.2 per cent higher for the day. Andrew Forrest's Fortescue Metals, which ships most of the iron ore it mines to China, trimmed its losses for the day to about 1.1 per cent.
ANZ, though, are among analysts who view today's market pick-up as potentially short-lived as the wider implications of the latest data are digested.
"While we think a rebound is under way, the cyclical rebound will be a moderate one because of the lack of policy conviction and the still uncertain global outlook," ANZ said in a note to clients.
"We thus cut our 2012 GDP forecast to 8.2 per cent from 8.6 per cent previously, with risks biased to the upside," the note said.
On a quarterly basis, China's economy expanded 1.8 per cent - better than the 1.6 per cent pace predicted by economists. The first-quarter growth figures, though, were revised lower to 1.6 per cent from 1.8 per cent.
Retail sales growth held up for the quarter, expanding 13.7 per cent and beating economists' expectations of a 13.4 per cent increase. The growth pace was in line with the 13.8 per cent annual expansion clocked up in the first quarter.
Not all the signs were positive, though, with new property construction during the first half of the year fell 7.1 per cent. The value of new home sales during the half year also fell 6.5 per cent to 1.9 trillion yuan ($232 billion).
Industrial production - also a big consumer of commodities - expanded at an annual rate of 10.5 per cent for the quarter, easing modestly from the 10.7 per cent pace reported for the January-March period.
China’s export growth in the first half cooled to 9.2 percent, down from 24 percent in the first six months of 2011, as Europe’s austerity measures and government debt burdens capped shipments.
Also dragging on demand is the crackdown on housing-market speculation. Any failure to secure a rebound this quarter may increase pressure on Wen to ease property controls.
First-half expansion was 7.8 per cent, the statistics bureau said. Premier Wen Jiabao in March set a 7.5 per cent growth target for this year, down from an 8 per cent goal in place since 2005.
“There is a rising urgency for more policy easing,” Shen Jianguang, chief Asia economist for Mizuho Securities Asia in Hong Kong, said before the release.
The government will have to act “decisively” to stem the slowdown, said Shen, who previously worked for the International Monetary Fund.
The government is likely to cut benchmark interest rates once and banks’ reserve-requirement ratio twice more this year, Shen said. A pickup in credit and easing of local-government financing curbs may aid investment growth, helping the economy rebound in the second half, he said.
ANZ, though, has a less optimtic view.
If the government fails "to relax its harsh property control policy" nor honour "its ambitious 7-million-unit public housing program, we believe growth momentum could remain sluggish in the remainder of the year," the bank said in its note to clients. "Indeed, the risks of growth of falling into a slippery downward path would increase sharply."
BusinessDay with Bloomberg