Chinese Economy Grows at Slowest Pace in 13 Years; What's Next for China?

Inquiring minds note the growth slowdown in China: China's economy stumbles in May, growth seen sliding in Q2.

China's economy grew at its slowest pace for 13 years in 2012 and so far this year economic data has surprised on the downside, bringing warnings from some analysts that the country could miss its growth target of 7.5 percent for this year.

"Growth remains unconvincing and the momentum seems to have lost pace in May," Louis Kuijs, an economist at RBS, said in a note. "The short-term growth outlook remains subject to risks and we may well end up revising down our growth forecast for 2013 further."

May exports to both the United States and the European Union - China's top two markets - both fell from a year earlier for the third month running.

Imports fell 0.3 percent against expectations for a 6 percent rise as the volume of many commodity shipments fell from a year earlier.

The volume of major metals imports, including copper and alumina, fell at double-digit rates. Coal imports fell sharply.

Economic growth slipped to 7.7 percent in the first quarter, down from 7.9 percent in the previous quarter. Both the International Monetary Fund and the Organization for Economic Co-operation and Development cut their forecasts for China's economic 2013 economic growth in May, to 7.75 percent and 7.8 percent, respectively.

But the further loss of momentum in the April and May could prompt the central bank to try to give the economy a lift, said Jian Chang, China economist for Barclays in Hong Kong.

"We had expected an L-shaped economic recovery in China and that the growth would stabilize at around 7.9 percent," Chang said.

"We now think China's growth will stabilize at around 7.6 percent (this year). The possibility for the central bank to cut interest rates is now rising," Chang said.

Pollyanna View

I certainly have no difficulty believing reports that China would slow dramatically given I have been calling for exactly that. Rather, my problem is the Pollyanna view that China is going to stabilize anywhere near 7 percent. 2 percent is more like it.

Given declines in energy usage, I rather doubt China is actually growing fast as claimed right now. For more on the China growth debate, please see ...

• The Dating Game: Michael Pettis Challenges The Economist to a Bet on China
• Michael Pettis on China Reforms, Ponzi Schemes in Wealth Management Programs, Rebalancing Implications
• Michael Pettis Interview with Lauren Lyster: Decade of Slower Growth for China

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com