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ECONOMY: August China Economy Report
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altChinese economic growth slows down to 7.6% from 8.1% 

Chinese growth fell from 8.1 per cent in the first quarter of this year to 7.6% in the second quarter. Beijing tried to mitigate the slowdown by cutting interest rates twice in less than a month; The People’s Bank of China  (PBoC) cut its interest rate in China for the first time in three years on June 8 just before the slowing economic growth data was released.  PBoC cut the country’s one-year lending rate by 0.31 percentage point again on July 5, effective July 6, before another set of weak economic growth data was released.


 

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“China’s decision to cut interest rates again, twice within a month, is a very important move,” said Nick Chamie, an analyst at Royal Bank of Canada in an interview with the Financial Times. 

 

“This aggressive policy action reflects, in our view, a deepening concern over the health of the economy by policy makers. The economy has yet to find a bottom and requires additional stimulative monetary settings to engineer a recovery,” says Chamie.

 

Beijing is supporting growth by increasing new loans from CNY 793 billion in May to CNY 920 billion in June. Analysts anticipate more aggressive stimulus measures given that inflation has also dropped to the all time low of 2.2 per cent from the highest point of 6.5 per cent last year. 

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Some claims this can be worse than it looks  

After the release of the economic data, a number of economists questioned if the reality may be worse than the government’s numbers. 

 

Economists with Barclays noted that a deceleration in industrial production was consistent with 7.0-7.3 per cent growth. Analysts at Capital Economics said that the true figure was probably closer to 7.0 per cent.

 

Investors are worried that China’s slowdown is bigger than we know. The innovation missing from Chinese companies has long been found in the nation’s data. At times, they are rounded down to allay fears of overheating; sometimes they are fudged to make the second-biggest economy look healthier than it is, according to Bloomberg. 

 

Looking at one of the three alternative indicators suggested by Li Keqiang, who is expected to succeed Wen Jiabao this year as premier, electricity output growth stayed flat in June whereas industrial production accounting for 40 per cent of GDP increased by 9.5 per cent in June. 

 

Economists may have overreacted to the fact that electricity consumption is at odds with official gross domestic product reading. But it goes to show how significant measuring of the speed of China’s economic growth engine has become to the rest of world.  

Chinese corporations’ struggle and bearish Shanghai stock market

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While the global stock market has declined due to concern over the global economy and corporate earnings, stock prices of Chinese companies have followed suit. 

 

Both the Hang Seng and Shanghai Composite indices trade at about 10 times forward earnings – near the historical lows of the 2008 crisis. With margins depressed too, that often suggests stocks are poised for a rebound according to the Financial Times.  

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China's two largest brokerages by assets, both reported declines in net profit for the first half of this year, a result analysts attributed to lackluster trading in the country's stock market, explains the Wall Street Journal.
 

Citic Securities Co., China's largest brokerage by assets, said its net profit fell 24 per cent from a year earlier in the first half of 2012. Separately, Haitong Securities Co., China's second-largest brokerage by assets, said its first-half net profit fell 9.4 per cent from a year earlier.

 
 




 


By Hyuk-tae Kwon

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