July 7, 2010 / 9:27 AM / 9 years ago

Poll points to China slowdown as policy picture blurs

BEIJING (Reuters) - China’s economy is slowing moderately in response to a slew of government curbs on the property market and bank lending, according to a Reuters poll released on Wednesday.

Annual gross domestic product growth probably slowed to 10.5 percent last quarter from 11.9 percent in the first three months of the year, when the economy’s vigor was exaggerated by comparison with a weak base in early 2009.

Even if the forecast of 32 economists is borne out when the government issues the GDP data on July 15, markets are jittery enough over a slowdown that they may take fright that Beijing is hitting the monetary brakes too hard.

Fear of an abrupt slowdown in China, a major driver of the world economy’s recovery from the deepest downturn in 80 years, is one the factors behind a recent swoon in global stock markets.

Other figures due on July 15 are likely to point to a similar year-on-year slowdown in factory output and investment growth.

But trade numbers scheduled for this Saturday are expected to show that year-on-year export and import growth remained robust last month, albeit a touch slower than in May.

The blurred picture makes it likely that China will stick to its broad policy settings for now.

“China does not yet have the economic foundations to adjust its active fiscal policy and appropriately loose monetary policy,” Yang Guozhong, an official with the People’s Bank of China, wrote in China Finance, a magazine run by the central bank.

China has raised banks’ reserve requirements three times this year and engineered a marked deceleration in money and credit growth, but it has kept benchmark interest rates unchanged.

When the time comes, China should tighten monetary policy first and then wind down fiscal stimulus, Yang wrote.

POLICY DILEMMAS

However, comments by officials from Premier Wen Jiabao down suggest Beijing is not about to shift policy gears, not least because of darkening clouds over the U.S. economy and the euro zone’s debt woes.

China’s economy is at a crucial juncture and faces growing uncertainties stemming from the global economic environment, Ma Jiantang, head of the National Bureau of Statistics, said in comments published on Wednesday.

Wen said at the weekend that the gravity of the global financial crisis, followed by twists and turns in the recovery, posed a growing number of dilemmas for China.

In response, the premier said, China would maintain “continuity and stability” in macroeconomic policy with an emphasis on “targeted and flexible” measures.

That has been the case with the property market.

Home sales have fallen and prices are stagnating due to steps by the central government, including higher down payments, the end of mortgage rate discounts, curbs on purchases of multiple homes and restrictions on lending to developers.

Economists expect prices in major cities such as Beijing and Shanghai to fall by 10 percent to 30 percent in coming months, at which point they think the government will relax the curbs.

“Although we are cautious about China’s short-term growth momentum because of the over-tightening in policies, we think China’s potential level of growth remains unchanged at 10 percent, and as soon as policy tightening is lifted, we should see growth bouncing back to its trend level or even above as it did before,” economists at Goldman Sachs said in a report.

The concern in some quarters, though, is that the government might clamp down even harder to ensure property prices fall back to earth and become more affordable to ordinary people.

Minister of Land and Resources Xu Shaoshi said on Sunday that property prices would fall this quarter as the tightening campaign continued, which was interpreted by some media as indicating that China was planning a new round of curbs.

Wang Yulin, deputy research head with the Ministry of Housing and Urban-Rural Development, was quick to douse the speculation.

“Such media reports embellished his remarks,” Wang told the Oriental Morning Post in Shanghai.

Writing by Alan Wheatley

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