Chinese economy hits three-year low

Growth rate of 7.6% is worst since depths of global financial crisis and could drag on countries supplying Chinese industry
China's economic slowdown could have global repercussions.
China's economic slowdown could have global repercussions. Photograph: AFP/Getty

China's economic growth has slowed to a new three-year low, dampening hopes it can make up for US and European weakness, but analysts have said a rebound might be in sight.

The world's second-largest economy grew by 7.6% in the three months ending in June compared with a year earlier, down from the previous quarter's 8.1%. It is the lowest since the first quarter of 2009 during the depths of the global financial crisis.

China's slowdown could have global repercussions, especially at a time when the United States and Europe are struggling. Lower Chinese demand could affect Asian economies that supply industrial components to its manufacturing industry and exporters of oil, iron ore and other commodities such as Australia, Brazil and African nations.

Other indicators, though, including strong June bank lending, which is closely tied to business activity, suggest the low point of the decline might be past, analysts have said. "The Chinese economy has already bottomed out in the first two quarters," said Xiao Li, an economist at Industrial Bank in Shanghai.


The slump raises the threat of job losses and political tension. The ruling Communist party is trying to enforce calm ahead of a planned once-a-decade handover of power to younger leaders.

China's export growth has fallen steadily and consumer spending has weakened despite stimulus measures that include two interest rate cuts since the start of June. The government is pumping money into the economy through higher investment by state-owned industry and more spending on low-cost housing and other public works.

Quarterly growth was in line with the government's official target of 7.5% for the year, which private sector forecasters say China still is likely to achieve.

"The growth rate of 7.6% is already an achievement because the economic situation facing China has been complex and severe," said Sheng Laiyun, a government spokesman, at a news conference. "We have seen tepid domestic and external demand."

Sheng rejected suggestions by some analysts that the slowdown might be deeper than reported and that Beijing ordered companies to make the economy look healthier by inflating data on electric power consumption, a key industrial indicator. "I want to say right here they are wrong," Sheng said.

China's economic growth has slown down for eight quarters, the longest slowdown since the government began reporting such data in 1992, according Yu Bin, a cabinet researcher. He said the previous record was six quarters.

The slowdown is due in part to government controls imposed in 2010-11 to cool overheating and inflation fuelled in part by Beijing's huge stimulus in response to the 2008 crisis. Chinese leaders reversed course last year and began easing controls after global demand abruptly plunged.

The government is moving cautiously after its 2008 stimulus pushed up inflation and spurred a wasteful building boom. Authorities have said curbs imposed on building and home sales to cool surging housing prices will remain in place, even though pumping up the country's slumping construction industry offers a quick way to boost growth.