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China Economic Development Slowing According to Data

Data released over the weekend show that China economic development is slowing or stagnant making Chinese officials doubt their growth estimates for 2013.

Reuters reports that China’s consumer inflation came in at 2.1 percent–the lowest in three months and well below Reuters’ projection of 2.5 percent. Producer prices were down 2.9 percent–the lowest since September.

Other data showed that Chinese banks lent about 667.4 billion yuan in new loans in May ($109 billion). This was well below expectations calling for 850 yuan and lower than April’s 792.9 yuan.

Finally, retail sales, fixed asset-investment, and industrial output were 12.9 percent, 20.4 percent, and 9.2 percent respectively. These were all in-line numbers but concerning since they were unchanged from the previous month.

The mostly negative data has Chinese banking officials in a difficult position. The Peoples’ Bank of China could lower interest rates to spur economic activity but they risk re-inflating housing prices.

China has put much effort into keeping housing prices from going parabolic by not lowering interest rates to the levels of US banks. The bank did that in 2008 and it left local economies under a pile of debt. The new Chinese leadership doesn’t want to repeat that mistake.

“Property prices will jump if it cuts rates as recent government cooling measures have not achieved desired results,” said Tang Jianwei, senior economist at Bank of Communications in Shanghai.

Whether China economic development is slowing for the long-term is not yet known but this weekend’s data appears that it might be for the near-term.

 

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