China's economy on track for gradual slowdown in H2 as gov't reiterates policy stance

10:30, July 24, 2011      

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China's economy is expected to head toward a gradual slowdown in the second half of this year, as the central government has stated that it will retain its current mix of tightened economic policies.

Top officials from the Political Bureau of the CPC Central Committee agreed at a Friday meeting that the country will stick to its proactive fiscal policies in the second half of this year, with stabilizing prices as its main priority.

China's government is currently trying to balance the need for healthy growth with attempts to control inflation.

Government data shows that the country's economic growth slowed to 9.5 percent in the second quarter of this year from 9.7 percent in the first quarter and 9.8 percent for the fourth quarter of last year.

However, the slowdown is coupled with rising consumer prices, with inflation reaching 6.4 percent in June, its highest level in three years. The consumer price index (CPI), a main gauge of inflation, jumped 5.4 percent year-on-year in the first half of 2011.

The government is targeting an economic growth rate of 8 percent for this year and plans to keep annual consumer price increases at around 4 percent. X To put a lid on price hikes, the central bank has raised its benchmark interest rates three times this year and increased its reserve requirement ratio six times, ordering banks to keep a record high of 21.5 percent of their deposits in reserve to drain excessive money out of market.

However, the tightening measures have ignited fears of a hard economic landing and resulted in financing difficulties for small- and medium-sized enterprises, which are the country's most significant sources of employment.

HSBC said Thursday that its preliminary purchasing managers index (PMI) for China dipped to a 28-month low of 48.9 in July. It fell below the 50-point level for the first time since July 2010, pointing to a monthly contraction of the country's manufacturing sector for the first time in a year.
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