China growth edges up in possible sign of recovery

AP Business WriterJuly 15, 2014 

— China's economic growth edged up in the latest quarter and more than 7 million new jobs were created in the first half of the year, easing pressure on communist leaders as they try to prevent a precipitous slowdown in the world's second-largest economy.

Economic growth rose to 7.5 percent over a year earlier in the three months ended June 30 from the previous quarter's 7.4 percent, data showed Wednesday. The first quarter matched a downturn in late 2012 for the slowest rate since the 2008 global crisis.

Communist leaders are trying to steer China toward growth based on domestic consumption instead of trade and investment. But the unexpectedly sharp slowdown raised fears of politically dangerous job losses. Beijing responded with mini-stimulus measures based on higher spending on construction of railways and other public works.

"A lot of the June data looks quite strong, stronger than expected," said economist Julian Evans-Pritchard of Capital Economics. "I think it should vindicate policymakers' approach to targeted measures to stimulate growth."

China's steady decline from the explosive double-digit growth rates of the past decade has had global repercussions, cutting demand for iron ore, copper and other commodities that helped to fuel its expansion.

The latest growth was in line with the ruling Communist Party's 7.5 percent target for the year. Analysts say Chinese leaders are willing to accept even slower growth so long as the economy generates enough new jobs to prevent unrest.

A relatively healthy 7.4 million urban jobs were created in the first half, according to a government spokesman, Sheng Laiyun. He said just over 3 million rural migrants moved to cities during that period to work, a sign of demand for labor.

"In the first half of the year, economic growth was stable. Employment was stable," said Sheng at a news conference.

Second-quarter consumer spending rose 12.1 percent over a year earlier, though that was down 0.3 percentage point from the previous quarter, Sheng said. He said investment in factories, real estate and other fixed assets rose 17.3 percent.

In other positive signs, foreign direct investment in China rose 0.2 percent in June, rebounding from a decline in May, the government reported earlier. June bank lending grew faster than expected, suggesting growing business activity.

The top economic official, Premier Li Keqiang, had promised earlier the second quarter would show an improvement, though he warned the economy still faced "downward pressure."

Trade growth this year has been well below the 7.5 percent level forecast in the ruling party's plans. That has raised the threat of job losses in export-driven manufacturing industries that employ millions of workers.

The economy also has suffered a blow from a slump in real estate prices and sales due to government controls imposed to cool a surge in housing costs and encourage developers to build more low-cost housing. That has sent shock waves through construction, steel and other industries that rely on real estate and employ millions of people.

Despite the latest uptick in growth, analysts expect China's expansion to cool further over the coming year.

The International Monetary Fund expects growth to slow to 7.3 percent next year and to below 7 percent in 2016. Some analysts expect an even deeper decline, with growth as low as 6.8 percent this year. That would be stronger than the United States, Japan or Europe but China's weakest annual growth in two decades.

The latest data show the economy's reliance on higher government spending to offset weakness in real estate investment, a key growth driver, said Evans-Pritchard.

"We don't think this is a sign that growth is stabilizing," said Evans-Pritchard. "The stabilization has been largely a result of government stimulus measures."

The ruling party has promised sweeping reforms to make the economy more competitive and productive. They include opening more industries such as health care and transportation to private and foreign competition, simplifying taxes and regulation and directing the state-owned banking industry to provide more credit to entrepreneurs that create most of China's new wealth and jobs.

"The Chinese leadership plans to rely on faster reforms to unleash new sources of growth during the period of structural adjustment," said UBS economist Tao Wang in a report this week.

National Bureau of Statistics of China (in Chinese): www.stats.gov.cn

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