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Analysts claim soft landing for China's economy
Updated: 2004-07-16 16:59

China's second-quarter economic growth cooled down more than expected, data showed on Friday, suggesting the government may be achieving a soft landing for the economy.

Gross domestic product was 9.7 percent higher than a year earlier. But some analysts said it had probably shrunk from the previous quarter.

The economy had been expected to grow 10.7 percent in the year through the second quarter, partly due to a rebound after the respiratory illness SARS dampened output last year, according to a median forecast of eight economists.

Several economists said the figures pointed toward a soft landing, in which the fast growth of earlier quarters would ease gradually to sustainable rates without falling into a bust.

"It's been a very positive slowdown: not too aggressive and not too little," said John Cairns, an analyst with IDEAglobal in Singapore.

The economy is the world's seventh largest and an increasingly important driver for the others.

It grew 9.8 percent in the year to the first quarter as the government limited investment in red-hot sectors such as property and autos and battled mounting inflationary pressures. Banks were ordered to hold more money in reserve, making less available for lending.

JP Morgan economist Ben Simpfendorfer estimated GDP had contracted from the first quarter at an annualised rate of 1.7 percent, after adjustment for seasonal patterns.

"It is lower than we'd expected -- not dramatically so -- and we don't think it argues for a hard landing," he said, referring to the 9.7 percent annual growth.

The State Statistical Bureau, which issued the data, said the overall performance of the economy had been good but cautioned that energy and transportation bottlenecks and rapid growth in fixed asset investment in some sectors were still troubling.

"The uncertainties and unhealthy factors existing in economic performance have been put under initial control," said bureau spokesman Zheng Jingping.

"However, we should be aware at the same time that those prominent problems existing in the economy have not been rooted out fundamentally," Zheng said.

Data Revised

The bureau also revised GDP growth for the year to the second quarter of 2003 to 7.9 percent from 6.7 percent, and for the first half of 2003 to 8.8 percent from 8.2 percent. Data collection had been disrupted by the SARS outbreak, it said.

Consumer prices rose five percent in the year through June 2004, as expected. But they fell 0.7 percent in June from May, suggesting the central bank may not need to resort to an interest rate rise, which would be the first in nine years.

The authorities have avoided raising rates to cool growth. Instead, they have used various administrative directives to curb lending and investment.

Central bank officials said earlier this year that China may need to raise rates if inflation hit five percent.

But since then growth in fixed asset investment, money supply and other indicators has slowed markedly and even sparked talk that Beijing may unwind some of the tightening measures soon.

JP Morgan's Simpfendorfer said the CPI numbers made an argument for easing some credit-tightening measures while still raising interest rates, perhaps at the end of August.

But DBS economist Chris Leung said: "I don't think they will increase interest rates and they will hold off on further tightening measures."

Bureau spokesman Zheng said China still needed to fine-tune its economic management in the second half of 2004.

"Focus should be put on adjusting structure, deepening reform and changing the pattern of economic growth to ensure the stable, fast and coordinated economic development," he said.

Fixed-asset investment was up 28.6 percent in the first half from a year earlier. That compared with a rise of 43 percent in first-quarter investment.

Retail sales, which have gathered strength in recent months, were up 12.8 percent in the first half from a year earlier. Sales were up 10.7 percent in the first three months.

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