China's GDP growth slows to 7.5%, tests reform push

With the latest data, its growth has slowed down in nine of the last 10 quarters

China's GDP growth slowed in the second quarter to 7.5 per cent year-on-year as weak overseas demand weighed on output and investment, lining up a test of Beijing's resolve to revamp the world's second-biggest economy in the face of deteriorating data.

Other figures showed industrial output in June rising slightly less than forecast compared with a year earlier, but retail sales increasing more than had been expected.

The latest year-on-year economic growth reading compared with the median forecast in a Reuters poll of 7.5 per cent and showed the pace of economic activity easing from 7.7 per cent annual growth in January-March.

“These figures are not surprising, adding to signs of downward pressure on China's economy,” said Zhou Hao, an economist at ANZ Bank in Shanghai.

The Australian dollar, which is highly sensitive to Chinese demand for Australian raw materials, rose on relief the GDP numbers were not weaker, following last week's report of a surprise fall in exports in June from a year earlier.

China's statistics bureau said the economy's performance in the first half of the year was stable overall and that indicators were within a reasonable range.

New Premier Li Keqiang has been prominent in pushing for economic reform over fast-line growth, suggesting the government is in no rush to offer fresh stimulus to revive an economy in a protracted slowdown.

With the latest GDP data, China's growth has slowed down in nine of the last 10 quarters.

The government's official growth target for 2013 is 7.5 per cent, impressive by world standards but it would be the slowest pace in 23 years for China.

The latest data showed the economy grew 7.6 per cent in the first half of the year from a year earlier, just ahead of the full-year target.

Analysts have cut their forecasts for 2013 full-year growth in recent weeks following a run of weak data and government comments on slowing growth. Ahead of Monday's economic figures, they were mostly forecasting 2013 growth between seven and 7.5 per cent.

Last week, customs data showed China's exports fell 3.1 per cent in June against forecasts for a rise of four per cent, while imports dipped 0.7 per cent versus an expected eight per cent rise. The customs administration added that the outlook for July to September was “grim”.

Other figures had shown factory-gate deflation persisted for a 16th straight month, backing the view that the economy, plagued by industrial overcapacity, is losing momentum.

Annual consumer inflation accelerated more than expected in June, but remained subdued at 2.7 per cent, below Beijing's annual target of 3.5 per cent.

The main worry for China's leaders is if the economic slowdown leads to high unemployment that could spark social unrest. So far government officials say employment is stable.

So for now, economists do not see any major stimulus or policy shift and instead expect the government to tough out the slowdown as they pursue a longer-term vision of reforming the economy towards consumer-led, rather than export- and investment-led growth.

Beijing is still cleaning up trillions of dollars in local government debt left over from its last spending spree during the 2008/2009 global financial crisis, while trying to rein in off-balance-sheet loans.

“The focus is still on reforms. The chances of a cut in interest rates or banks' reserve ratio look slim,” Xu Hongcai, senior economist at the China Centre for International Economic Exchanges (CCIEE), a think-tank in Beijing, said before the release of the GDP data.

“Previously, when the economy was not good, local officials held out their hands for money from the central government. But now they have to embrace reforms as no money will be given.”