CHINA’S SLOWDOWN

SLOW CHINA GROWTH LEAVES WEN FEW OPTIONS

Bloomberg News

Bloomberg, July 11, 2011

China’s economy probably grew the least in almost two years last quarter, contributing to a global weakening that Premier Wen Jiabao confronts with more limited scope for policy response than during the 2008 world recession.

The government is forecast to report July 13 gross domestic product rose 9.3 percent from a year before, according to the median estimate in a Bloomberg survey, down from 9.7 percent the previous quarter. With data two days ago showing consumer prices climbed the most in three years in June, any easing in the central bank’s monetary stance risks escalating price pressures.

China’s slowdown was underscored by the weakest import gain since 2009 in June, limiting the chance for the U.S. and Europe to export their way out of their own domestic challenges. A 58 percent jump in bank credit in 2009-2010 and concern that local governments may default on loans leaves Wen with less room to unleash the scale of stimulus that aided the world in 2008.

“Any significant policy loosening or introduction of another big stimulus right now would run the risk of plunging the Chinese economy into a real hard landing, with inflation running out of control and government debt and bad loans piling up,” said Lu Zhengwei, Shanghai-based chief economist at Industrial Bank Co., who was rated China’s best analyst in 2010 by China Business News newspaper. “Softer growth is more sustainable” and will help contain inflation, he also said.

Wen has toured farms, factories and low-income housing projects in two northern provinces this month to highlight the government’s commitment to fighting inflation and boosting supplies of cheap homes.

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