China's Economy Slows but still Expands at Double-Digit Pace

China's economic juggernaut slowed but still maintained double-digit growth in the first half of the year as it battled inflation and absorbed global setbacks, official data showed Thursday.

The world's fourth biggest economy expanded by 10.4 percent in the first half and 10.1 percent in the second quarter, the National Bureau of Statistics said, down from the sizzling pace of 11.9 percent recorded for all of 2007.

Bureau spokesman Li Xiaochao said domestic inflation, problems with food supplies and global economic woes were among the chief concerns for China.

"Pressure for rapid price increases remains high, there are factors constraining steady agricultural production," Li said.

"The international financial situation is severe and there are uncertainties in world economic development."

Nevertheless, he said China's economy remained strong and that the slowdown was under control.

"The national economy maintains the momentum of steady and fast growth," he said. "This slowdown is in line with our expectations."

NBS chief economist Yao Jingyuan said the economy would likely grow at 10 percent for the full year, although this was still above the target set by Premier Wen Jiabao of 8.0 percent.

China's consumer price index -- the main gauge of inflation -- rose 7.9 percent in the first half of 2008, with food prices soaring 20.4 percent, according to the bureau.

However, inflation has come off 12-year highs seen earlier in the year, when it peaked at 8.7 percent in February, with economists saying the fall was due to a raft of economic tightening measures, including interest rate hikes.

For June alone, inflation was 7.1 percent, the bureau said.

Nevertheless, there were few expectations inflation would fall steeply enough to achieve the government's full-year target of 4.8 percent.

"Certainly, the expectation for inflation is fairly strong ... due to price rises on the international market," Li said.

China had already released data last week showing the nation's trade surplus had fallen nearly 12 percent in the first half, as exporters struggled with the global economic slowdown, particularly problems in the United States.

The appreciation of the yuan against the dollar, as well as curbs such as tariffs on exports imposed by the government to rein in the surplus, also contributed to the decline.

Jing Ulrich, chairman of China Equities for JPMorgan Securities, said that although the economy was slowing down and exporters were feeling the heat, the government had the tools to maintain control.

"Despite the multiple challenges of a global slowdown, high inflation and natural disasters, the Chinese authorities have a range of options for addressing the key domestic policy challenges," Ulrich said.

Zhang Xinfa, an economist with Galaxy Securities, agreed with the official assessment that the slowdown was steady and controlled, although he said the government had to ensure its tightening policies did not bite too deeply.

"The government must strike a balance between maintaining economic growth and fighting inflation," he said.

Economists said the earthquake that devastated large areas of southwest China in May, leaving 88,000 people dead or missing, did not have a big impact on the economic growth numbers in the second quarter.

However, a huge post-quake reconstruction effort could lift the growth numbers in the short term, according to Moody's expert Sherman Chan.

"Rapid and large-scale reconstruction works in the next couple of years will provide a boost to economic activity," he said.

Industrial output, a key measure of activities in the nation's factories, expanded by 16.3 percent in the first half and 16.0 percent for June alone, according to the bureau.

China's fixed asset investments rose 26.3 percent in the first half of 2008 from a year earlier, the bureau said.

Source: AFP

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