China Economy: Growth Slows to 9%

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Beijing, 20 Oct. Most countries can only dream of 9% growth rates, but for China that’s bad news. Growth is slowing in the world’s fourth biggest economy.

Economic growth

in China slowed to 9% in the third quarter of 2008, down from 9.9% over the same period in 2007. The second quarter’s growth was 10.1%. A recent Dow Jones Newswires survey of 11 economists predicted a rate of 9.5%.

The financial crisis has had widespread global repercussions and China is not immune to them, despite its high per capita savings and stable banking system. A slowdown in industrial profits and increasing economic uncertainties have dampened both corporate and commercial investment.

A depressed real estate market and short-term manufacturing limitations imposed during the Olympics have also contributed to this slowdown. Many factories were closed during the August Olympic Games to reduce the amount of emissions in the air during that time.

Growth in developing economies such as China and India should be higher than more developed nations like the US and the UK. This can be partly attributed to infrastructure development and the masses emerging from poverty. However, all eyes are on the US to see how fast and how well it pulls through the financial crisis.

Li Xiaochao, a spokesman from The National Statistics Bureau, said that "there are no signs of a definite recovery from the financial crisis."

This is despite recent interest rate cuts and a decrease in the reserve requirement ratio. Central banks around the world slashed target lending rates to increase liquidity, and China followed. The latest lending rate cuts were the second in two months.

“The growth rate of the world economy has slowed down noticeably. There are more uncertain and volatile factors in the international economic climate. All these factors have started to release their negative impact on China's economy.”Li Xiaochao added.

Nevertheless, China experienced record-high trading in August and September. This trade surplus is in part a product of the nation’s pro-growth policy, which entails looser monetary guidelines and increased fiscal spending.

The government of China said it was taking a “flexible and cautious” economic approach to handle changes both internally and internationally. It referred to its macroeconomic policy as "flexible and prudent".

The good news is that retail sales increased 23.2% in September from 2007. And fixed asset investment in urban zones increased 27.6%; the expectations were for only a 27.1% rise. The figure was 27.4% from January to August. Fixed asset investment rose 29% from 2007.

Prices rose too, but not as much as expected. The consumer price index jumped 4.6% in September from last year, slowing for the fifth consecutive month. Economists, however, forecast a 4.7% rate. The figure reached 4.9% in August. Central banks generally allow for some inflation, as long as it is less than overall GDP growth.

This reduced fear of inflation helped to mitigate any adverse effects the recent rate cuts and more relaxed fiscal policies.

Goldman Sachs economist Hong Liang said, “We expect the Chinese government to continue to loosen policies on the back of fast-slowing activity growth and dissipating inflationary pressures."

Chen Xiulian, EconomyWatch.com

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China Economy: Growth Slows to 9%

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Beijing, 20 Oct. Most countries can only dream of 9% growth rates, but for China that’s bad news. Growth is slowing in the world’s fourth biggest economy.

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