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Has China’s growth peaked out?

business Updated: May 17, 2010 21:06 IST

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A leading Chinese economic indicator showed that growth may have already peaked in the world’s third-largest economy with the stock market falling on investor worries about the government’s campaign to rein in property prices.

Adding to the impression that China is now facing stronger headwinds, a commerce ministry official said exporters were feeling the pain of a weaker euro and the trade surplus will narrow sharply this year.

The main stock index in Shanghai fell 5.1 per cent to its lowest close in a year. It was the steepest one-day fall in the Shanghai Composite Index in eight months.

Many analysts have said that overheating, not a steep slowdown, remains the bigger risk for China.

Nevertheless, in a sign that Beijing will be cautious before taking more steps to cool the economy, Premier Wen Jiabao warned over the weekend that the government must avoid “negative consequences” from piling up adjustment policies.

The economy’s outlook remains very strong, but it may not have scope to accelerate over the next few months, according to The Conference Board. Its leading economic index for China, or LEI, rose to 1.5 per cent in March.

“Developers may have been front-loading projects in anticipation of controls on the real estate market that were subsequently implemented in late April,” said Bill Adams, an economist with The Conference Board in Beijing.

“The recent behaviour of the LEI for China suggests the economic expansion is unlikely to accelerate further through the summer months,” he added.

That would hardly be a catastrophe, but the Chinese stock market fell on fears that there could be worse to come as the government sets its sights on runaway property prices.

China still officially describes its monetary policy as “appropriately loose”.

UK to curb spending
Britain’s new coalition government will outline spending cuts of some 6 billion pounds (Rs 41,000 crore) this year in an emergency budget next month, Treasury chief George Obsorne said Monday.

Osborne said the June 22 budget will help the country get to grips with a record deficit, as he also unveiled a new independent watchdog to keep an eye on the government’s spending plans. “Deficit reduction and continuing to ensure economic recovery is the most urgent issue facing Britain,” Osborne said, holding his first news conference since assuming his post. “This is unprecedented speed for a spending round, but we need to get moving, and every day comes at the cost of more wasteful spending.”

Britain is grappling with a record 163 billion-pound (Rs 11 lakh crore) budget deficit following a deep 18-month recession during which about 1.3 million people were laid off and tens of thousands lost their homes.

The Trades Union Congress condemned the cuts, saying the economy was still too fragile to “wield the axe,” echoing former leader Gordon Brown’s Labour Party, which had argued in campaigning for the recent general election against cuts to spending this year. Osborne’s Conservative Party, led by PM David Cameron, maintains that greater austerity is needed quickly to restore business confidence in UK.