China economy slows slightly

Reporting from Beijing —  The pace of China’s economic growth slowed in the second quarter as weaker global demand and government policies aimed at reining in excess liquidity and runaway property prices moderated the world’s second-largest economy.

Official data released Wednesday showed China’s economy still grew by a blistering 9.5% April through June compared with the same period a year ago. That’s down only slightly from the 9.7% in the first three months of the year, suggesting the country could face more government measures to cool the economy.

The central government is trying to administer a gradual slowdown of its economy after it grew too heated following a massive stimulus program in 2009 and 2010 designed to stunt the effects of the global financial crisis.

The task has taken on greater urgency in recent months because of steadily rising inflation. China’s consumer price index hit a three-year high in June by jumping 6.4% from a year earlier. At the forefront of the rising costs are soaring food prices, a particularly sensitive issue to the government because of its effect on social stability.

Evidence is growing that the economy may be experiencing a modest slowdown.

Data released last week showed manufacturing activity in June expanded at its slowest pace in 28 months as markets in the United States and Europe continued to battle unemployment and high debt.

China’s strict home-buying rules, aimed at stamping out property speculation, have also triggered a drop in real estate sales in the nation’s most overheated markets.

To mop up the deluge of liquidity created by a bank-led stimulus program, the central bank has raised benchmark interest rates five times since October and hiked the amount of capital banks must hold on reserve to record highs.

The challenge for policymakers will be how much to tighten the economy without triggering a so-called hard landing, as some investors now fear.

Many analysts at Western banks have downgraded their growth forecasts for China this year but say the threat of a deep slump remains slim.

Still, they warn that new risks such as growing municipal debt and stubborn inflation could threaten the Chinese economy in the near term without proper policy measures.

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