China’s growth passes peak and more tightening feared

BEIJING – A Chinese leading economic indicator showed that growth may have already peaked in the world’s third-largest economy, with the stock market falling on investor worries about the government’s campaign to rein in property prices.

Adding to the impression that China is now facing stronger headwinds, a commerce ministry official said exporters were feeling the pain of a weaker euro and that the trade surplus would narrow sharply this year.

The main stock index in Shanghai (.SSEC) fell 5.1 percent to its lowest close in a year and its steepest one day fall in eight months.

Many analysts have said that overheating, not a hard landing, remains the bigger risk for China.

Nevertheless, in a sign that Beijing will be cautious before taking more steps to cool the economy, Premier Wen Jiabao warned over the weekend that the government must avoid “negative consequences” from piling up adjustment policies.

The economy’s outlook remains very strong, but it may not have scope to accelerate over the next few months, according to The Conference Board. Its leading economic index, or LEI, for China rose 1.1 percent in March.

“Developers may have been front-loading projects in anticipation of controls on the real estate market that were subsequently implemented in late April,” said Bill Adams, an economist with The Conference Board in Beijing.

“The recent behavior of the LEI for China suggests the economic expansion is unlikely to accelerate further through the summer months,” he added.

This assessment was in line with a view increasingly prevalent among economists that Chinese growth probably peaked at an 11.9 percent year-on-year pace in the first quarter.

Chen Dongqi, deputy head of the macroeconomic research institute under the National Development and Reform Commission, said in comments published on Monday that annual growth would slow to 10 percent over the remaining quarters of 2010.

That would hardly be a catastrophe, but the Chinese stock market fell on fears that there could be worse to come as the government sets its sights on runaway property prices.

China still officially describes its monetary policy as “appropriately loose.” In practice, it has used banks’ reserve requirements, lending controls and a series of property rules to gradually tamp down on the economy.

NEGATIVE CONSEQUENCES

Premier Wen Jiabao said on Saturday that the government faced a dilemma.

“Pay attention to coordination in macroeconomic policy, so that it forms into a cohesive overall force and also prevent negative consequences from multiple overlapping policies,” Wen told an audience of officials.

Lu Zhengwei, chief economist at Industrial Bank in Shanghai, said the stock market slump was temporary, caused primarily by worries over the property clampdown.

The economy was slowing but still strong, and Premier Wen’s comments indicated that the government would move only gingerly with further tightening, he said.

“The basic tone of the government’s macro-economic policies will not change this year and the possibility of an early exit from pro-growth measures has also been ruled out,” Lu said.

The most feverishly awaited of any policy change by China is a resumption of yuan appreciation, with the currency effectively pegged to the dollar since mid-2008 to cushion the economy from the global financial crisis.

In fact, the Chinese currency has already been rising strongly, only against the euro, not the dollar, a commerce ministry spokesman said.

“The yuan has risen about 14.5 percent against the euro during the past four months, which will increase cost pressure for Chinese exporters and also have a negative impact on China’s exports to European countries,” Yao Jian told a news conference.

As it tracks the rising dollar, the yuan has appreciated against a trade-weighted basket of currencies, which many analysts believe could constrain the scope for any revaluation.

The yuan hit its strongest level against the euro since late 2002 on Monday as the euro tumbled against the dollar on global markets. Offshore dollar/yuan forwards jumped across the curve to imply less future yuan appreciation against the dollar.

Related Posts

• Japan Aims to Tighten Recall Rules [/caption] TOKYO—Japan's transport authorities are planning to tighten rules related to vehicle recalls, responding to criticism that insufficient government oversight...
• Dutch become 1st NATO member to quit Afghanistan [/caption] KABUL, Afghanistan – The Netherlands became the first NATO country to end its combat mission in Afghanistan, drawing the...
• Greek's debt troubles raise contagion worries [/caption] by: Martin Crutsinger and Tomoko A. Hosaka, Associated Press Writers WASHINGTON -- The Greek debt crisis sent a shudder...
• Google wins permission to keep website in China [/caption] SAN FRANCISCO – Google won permission Friday to maintain its website in China and keep its toehold in the...
• Another US Internet company pulls back in China [/caption] By JOELLE TESSLER, AP Technology Writer WASHINGTON – Two U.S. companies that sell Internet addresses to Web sites said...

Related Websites

• Will There Be A Second Stimulus Check? I Hope Not. Man, do I hope not. The first stimulus check cost us $168 billion dollars, and that was before we had...
• Second child in China http://www.chinadaily.com.cn/china/2009-03/26/content_7618314.htm Craving for a second child? Govt will dent your pockets By Xin Dingding and Wang Updated: 2009-03-26 09:04 Wealthy...
• Macau Casinos Continues Redundancies Things have gone so snake-eyed in Macao, the tiny gambling mecca on the southern coast of China, that the Venetian...
• Can it be possible that the stock market has become a safer and better investment than the banks? It seems such a short time ago that people who invested all of their money in the stock market were...
• Protecting Yourself Against Inflation While the debate between inflation and deflation keeps on going, I'm firmly in the camp of inflation. And so is...