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China's economy slows in third quarter

October 18, 2011 |  4:47 am

China's economy grew at its slowest pace in two years in the third quarter
China's economy grew at its slowest pace in two years in the third quarter on weaker demand for exports, tighter credit and home-buying restrictions.

The country's gross domestic product rose 9.1%, compared with 9.5% in the second quarter and 9.7% in the first quarter, China's National Bureau of Statistics said Tuesday.

The increase was below a median forecast of 9.3% in a survey of 22 economists by Bloomberg News and less than the 9.2% median estimate in a Dow Jones Newswire survey of 14 economists.

Though its growth rates are the envy of the world, China's central government is trying to engineer a controlled cool-down of the economy, which is battling its highest inflation in three years.

Policymakers say China needs slower and more sustainable growth after record amounts of lending in 2009 and 2010 fueled soaring debt and excess real estate investment and infrastructure construction.

The government faces the risk of tightening the economy too much and triggering a so-called hard landing. Worsening economic conditions in Europe and the U.S. make that task even harder because of the threat of declining demand for Chinese exports.

"Growth has come in lower than market expectations, but we remain of the opinion that the Chinese economy continues to chug towards a soft-landing, even as the risk of a hard-landing is rising on account of weakness in advanced economies," analysts at IHS Global Insight wrote Tuesday.

Investors have already shown diminishing faith in Chinese shares. Before rebounding modestly this week, the Hang Seng China Enterprises Index of Chinese stocks was one of the worst performing benchmark indices, sinking 20% for the year. The MSCI China Index has lost about 25% of its value in the last 12 months.

A Bloomberg poll of investors, analysts and traders released last month found that 59% of respondents thought China's economic growth would expand by less than 5% by 2016.

That doesn't mean demand by the Chinese for imported commodities, consumer goods and automobiles will collapse, say analysts at GaveKal Dragonomics, a China-based research firm.

In a note to clients Monday, the firm said China's economic output was on track this year to equal $7 trillion. That's more than double the $3 trillion of five years ago.

"So every percentage point of GDP growth now has much more real impact," the firm noted. "In fact, China's economy is so large now that it is now creating more new domestic demand, in raw dollar terms, than it did when headline GDP growth was in double digits. Even a slowdown to 7.5% next year would still probably mean China is adding more new domestic demand than the Euro zone or the U.S."


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-- David Pierson

Photo: Chinese workers on a construction site in Shanghai. Credit: Qilai Shen / EPA