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China's Economic Growth Slows Amid Monetary Tightening
BBC NEWS, BUSINESS
July 13. 2011: China's economic growth has slowed further in the second quarter after the government stepped up its battle against inflation. Growth was 9.5% in the three months to the end of June compared with a year earlier. That is down from 9.7% in the previous quarter.
China says controlling prices is its top priority after inflation hit a three-year high in June. However, other data on Wednesday showed it might be tough to slow growth further. China's factory output grew by a better-than-expected 15% in June, while retail sales surged by 17.7%.
Analysts say further tightening measures are likely before the year is over. "With inflation hitting a new three-year high in June, further monetary measures look likely," said George Worthington, an economist at IFR in Sydney. He added that the current central bank interest rate of 6.56% could rise another 50 basis points by the end of September. The prospect of China's economic growth slowing has raised worries over how this might affect the world's other main economies. However, IFR's Mr Worthington downplayed these concerns. Wednesday's "data should also help to dispel the wilder fears of an economic collapse in China as a result of the anti-inflation fight", he said.
Despite the slowdown China's growth rate remains one of the quickest in Asia, and is cementing its position as the world's second-biggest economy. However, strong domestic demand and global problems with food production have led to an increase in the cost of food and other essential commodities such as fuel. This in turn has led to the occasional outbreak of discontent that the government is keen to control and limit.
Some analysts say that a slowdown in the growth rate is something China will have to accept if it wants a stable political and pricing environment. "The biggest problem for China is not growth deceleration, it is inflation," said Chris Leung, senior economist at DBS Bank in Hong Kong. "So in order to solve inflation, growth will have to slow down."
