China growth slows as global economy remains sluggish

Published:  3 Sep at 9 AM

A slowdown in domestic and international demand for goods is being cited as one of the reasons why China’s economy is continuing to contract after several years of rapid growth. The latest figures show that activity in the manufacturing sector dropped in August to the lowest it has been in nine months.

IHS Global Insight analyst, Alistair Thornton, said the external climate was failing to supply the demand that Chinese production requires, and the same goes for the domestic market. He added that the situation was being exacerbated by an insufficient support policy by the Chinese authorities.

The Purchasing Managers’ Index shows a drop to 49.2. Any number less than 50 indicates economic contraction. Much of the growth in China over the past few years has been in part due to heavy lending by the country’s financial institutions. A result of this has been a rapid increase in the price of property which has led some experts to fear the creation of asset bubbles.

Attempts by the authorities to curb lending have had a negative impact on China’s economic growth. During the second quarter of the year the country recorded growth of 7.6 per cent which is a three-year low.

Mr Thornton said the government was failing to keep pace with the current slowdown even though it has cut interest rates and slashed the amount that banks are required to keep in reserve.