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China growth slowdown raises concerns

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China growth slowdown raises concerns
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China’s economic recovery unexpectedly stumbled in the first three months of the year.

GDP grew by 7.7 percent from a year ago, as factory output and investment spending slowed

That was down on the 7.9 percent in the fourth quarter of last year.

As a result analysts are rethinking and reducing their full-year forecasts, despite official insistence that the outlook is favourable.

China has set a 7.5 percent GDP growth target for the year.

Beijing believes that level of economic expansion will create sufficient jobs while providing room to deliver the structural reforms that government — and international policy advisers — feel are necessary to put growth on a more sustainable long term footing.

Forecasts trimmed

RBS had cut its full-year GDP growth forecast to 7.8 percent from 8.4 percent even before the data.

“This is both due to the impact of the weaker start of 2013 and because the Q1 data shows slower quarter-on-quarter growth momentum than expected,” Louis Kuijs, chief China economist at RBS in Hong Kong, wrote in a note to clients.

His observation on quarterly growth was shared by others equally concerned about quarter-on-quarter expansion easing to 1.6 percent in Q4 from 2.0 percent in Q4.

Sheng Laiyun, spokesman at the National Bureau of Statistics told a news conference that such worries were unfounded.

“China’s economic fundamentals haven’t changed. We are confident about future growth and optimistic about achieving this year’s growth target,” Sheng said.

“Employment is very stable,” Sheng said. “Stable employment is a basic indicator of China’s economic stability,” he added, quoting Ministry of Labour and Social Securities data showing that China created over three million new jobs in the first quarter.

Construction concerns

The rapid rise of a new consumer class in China is a factor that keeps investors broadly optimistic about the longer-term future of the economy, provided policymakers can rebalance the drivers of growth away from the investment spending and exports to which it is currently tilted.

Domestic consumption was the biggest driver of growth in Q1 delivering 4.3 percentage points of the 7.7 percent total. Capital formation delivered 2.3 percentage points while exports generated the 1.1 percentage point balance.

But as construction is a major component of domestic consumption, economic activity is still largely dependent on investment spending which is currently around 50 percent of GDP and a level which worries the International Monetary Fund, among others.