ET Wealth: Chinese economy to pick up later this year

The Chinese economy was hit in the first half of this year due to falling demand for its exports. The European debt crisis that has continued to weigh on the global economy was mainly responsible for the slowdown in the Chinese economy.

Exports grew only 8.7% year-on-year during the first five months compared with a growth of over 20% in 2011. Exports to Europe dropped 0.8% year-on-year after growing 14.4% in 2011.

According to a report by ICBC, tighter monetary conditions as a result of previous tightening efforts during 2010-11 have also contributed to the slowdown. Moreover, domestic demand has weakened due to slowing consumption and investment growth.

The Chinese authorities have accelerated their efforts to support growth in the wake of the weaker data. The efforts include increasing the pace of approval of major infrastructure investment projects, increased lending by banks for infrastructure and low-income housing projects.

Most importantly, the PBoC announced an interest rate cut which is a clear signal of easing monetary policy. In this the PBoC has also lowered the official reserve requirement in February and May by a total of 100bps.




ICBC believes that these policy responses will lend some support to the economic growth in the second half of the year. However, it has revised the full year GDP growth forecast downward to 8% from 8.5%.