China?s Economy, While Still Surging, Begins Showing Signs Of Moderation
August 11, 2010
The New York Times
HONG KONG — In the latest signs that the Chinese economy is beginning to cool after setting a torrid pace in the first half of this year, several government indicators slowed slightly last month, Beijing announced on Wednesday.
The July indicators for industrial output, retail sales, fixed-asset investment and bank lending all provided a fairly consistent snapshot of a country where economic growth remains the strongest in the world, but where the nearly manic spending of the last few months is starting to fade.
A gradual slackening in retail sales and fixed-asset investment last month, together with a weakening of imports that was announced on Tuesday, pointed to more caution by consumers and investors alike in China . Exports continue to surge, creating the prospect that China may once again rely on foreign buyers to sustain rapid economic growth and limit unemployment.
The moderation in China ’s economic growth is no accident. A series of government policies, as varied as limits on bank loans and restrictions on real estate investments, have been aimed at preventing the economy from overheating, which could fan inflation.
But an imbalance in China between strong exports and weakening domestic demand could rekindle trade tensions with industrialized and developing countries, economists said. Unemployment remains a problem in many other countries, not just the United States, that find themselves buying ever more from China .
Particularly unexpected in the data on Wednesday was the restraint that Chinese banks showed in issuing new loans, which in turn contributed to slower growth in the money supply. Banks issued 533 billion renminbi ($78.7 billion) in new loans last month, down from 603.4 billion renminbi ($89.1 billion) in June.
A broad measure of money supply, M2, rose 17.6 percent in July compared with a year earlier after being up 18.5 percent in June.
“We believe this level of broad money supply growth is clearly too restrictive, as it will put more downward pressure on domestic demand growth in the near future,” two Goldman Sachs economists, Yu Song and Helen Qiao, wrote in a research note.
The gradual slowing in China is evident in the factories that have turned the country into the manufacturing center of the world. Industrial output rose 13.4 percent last month compared with the same month last year.
By comparison, industrial output had been up 13.7 percent in June from a year earlier, after rising 16.5 percent in May.
Much the same pattern was evident in fixed-asset investment, which was up 24.9 percent last month compared with a year earlier. It had been ahead by 25.5 percent in June.
Retail sales rose 17.9 percent in July compared with the same month last year, as Chinese consumers with rising wages continued to flock to stores. But sales had grown 18.3 percent in June compared with a year earlier, and had been up 18.7 percent in May.
Chinese policy makers have long feared that inflation could lead to social unrest, and have tailored many policies to prevent it. Consumer prices were up 3.3 percent in July from a year earlier, accelerating from an increase of 2.9 percent in June.
But there were signs that inflation could begin to moderate. Producer prices were 4.8 percent higher in July than a year ago, after being up 6.4 percent in June and 7.1 percent in May.
Many businesses are complaining about rising costs, which may hurt their willingness to invest. Alex Yu, a senior manager at the Dongguan Jet Power Metals and Plastics Factory in Dongguan , China , said that wages had climbed 20 to 30 percent in the last year while the cost of an indispensable kind of raw plastic had soared 23 percent.
“Everything is getting more and more expensive, we feel the impact of inflation in all areas of our business,” he said.
On Tuesday, China ’s General Administration of Customs announced that the country’s trade surplus reached $28.7 billion last month, the highest level since January 2009.
Senator Charles E. Schumer, Democrat of New York, who has repeatedly called for a more confrontational trade strategy toward China, said in a statement late Tuesday that China’s latest trade numbers “show just how little motive China has to end its currency manipulation unless it is pushed to do so.”