The Chinese economy is growing at its slowest pace since the recession — a worrisome sign for its trading partners, including the United States.
Compared to a year earlier, China’s economy grew 7.6% in the second quarter, the National Bureau of Statistics said Friday, marking a deceleration from an 8.1% growth rate in the prior quarter and the slowest growth since early 2009.
While the rate still sounds fast compared to paltry 2% growth in the United States, it marks an uncomfortable soft patch for China. Over the last three decades, the country has barreled ahead at an average of about 10% a year.
The slowdown can be blamed on a variety of factors. China’s government was aiming for a slight deceleration, as it tried to tame its real estate boom and rapid inflation.
Those measures have largely worked, with ongoing real estate regulations weakening property sales. Meanwhile, inflation recently fell to its lowest rate in two years.
But the timing of those efforts has coincided with turmoil in the global economy. Weaker demand from foreign customers, especially in Europe and the United States, has hit Chinese exports hard, and its manufacturing sector has slowed.
Overall, the economy is now slowing more quickly than initially hoped, and the ripple effect can be felt around the world.
China is the United States’ third largest customer for exports, after Canada and Mexico, and many American companies are relying on strong sales there to boost their bottom lines.
Already, the slowdown has been weighing on global companies. Advanced Micro Devices, a chip maker based in Sunnyvale, Calif., lowered its sales outlook earlier this week, citing softer demand in China. So too did Cummins, an engine-maker based in Columbus, Ind.
Chinese steel manufacturer Baoshan Iron & Steel announced it will lower steel prices, implying demand from infrastructure projects is waning. Aluminum maker Alcoa also cited “delayed infrastructure spending” in China in its latest earnings release.
Stabilizing the economy is now China’s top priority, Premier Wen Jiabao said this week.
“As a developing nation, China needs to maintain a certain level of economic growth so as to provide a foundation for economic and social development, as well as the improvement of people’s livelihoods,” Wen said, according to official news agency Xinhua.
As part of its stimulative efforts, the People’s Bank of China cut interest rates twice since June and has also tried to spur growth by freeing up bank reserves.
Bank lending has started to pick up in China, and economists are hopeful that this will lead to stronger economic growth in the second half of the year.
