China second quarter GDP to test reformers' stomach for weaker growth

Sun Jul 7, 2013 10:13pm EDT
 
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By Langi Chiang and Koh Gui Qing

BEIJING (Reuters) - China's resolve to revamp its economy for the long-term good will be tested this month when a slew of data show growth is grinding towards a 23-year low, with no recovery in sight.

The median forecast of 21 economists polled by Reuters show China's economy likely grew 7.5 percent between April and June from a year ago, slowing from the previous three months as weak demand dented factory output and investment growth.

Growth prospects for the rest of the year look even grimmer if last month's unprecedented money market crunch, which saw short-term interest rates spike to record highs, eventually feeds into the real economy through higher lending rates.

Firms burdened by higher borrowing costs could shed jobs in coming months, analysts say, lifting unemployment that is a decisive factor in Chinese policymaking.

China's new leaders, President Xi Jinping and Premier Li Keqiang, have flagged for some time that the rapid GDP growth of the past three decades needs to shift down a gear as the economy moves towards consumer-led expansion.

Beijing has consequently resisted so far taking policy action to boost the economy, opting instead for slower but better-quality growth not reliant on extravagant investment funded by debt.

But things could change, especially as China's labor market betrays signs of its first crack.

"As China sticks to reform, the downward pressure on the economy will increase," said Jianguang Shen, chief China economist with Mizuho Securities Asia in Hong Kong. "Rising unemployment and bad loans will be inevitable."   Continued...

 
A labourer moves a steel pipe at a residential construction site in Fuzhou, Fujian province July 4, 2013. Picture taken July 4, 2013. REUTERS/China Daily