In China, a slowdown takes hold

Article by: KEITH BRADSHER , New York Times
Updated: May 24, 2012 - 11:00 PM

The economy has barely grown this year, and real estate prices are falling.

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Workers fixed the roof of a house in Beijing. The World Bank cut its growth forecast for China, adding to warnings the world’s second-largest economy might slow too abruptly.

Photo: Vincent Thian, Associated Press

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XI'AN, CHINA - A nationwide real estate downturn, stalling exports and declining consumer confidence have produced what a senior Chinese government expert labeled on Thursday as a "sharp slowdown in the economy."

Though the Chinese economy continues to expand, construction workers are losing jobs in droves and retail sales grew last month at the slowest pace in more than three years.

The most striking feature of the slowdown is that it extends beyond the coastal provinces, which depend on exports and are closely linked to the global economy, to the country's far more insular interior, including big cities like Xi'an. Until now, China's economy barreled ahead unhindered as the main engine of global growth, even as Europe struggled with its government debt crisis and the United States limped along with a crippled housing market.

Government indexes show real estate prices are falling in more than half of the country's top 70 urban markets. Standard & Poor's Ratings Services and Moody's each issued reports on Thursday warning that many of China's real estate developers face a severe cash squeeze as apartment sales slow to a crawl.

"Weak property developers in China are likely to face a test of their survival this year," Standard & Poor's said.

China's economy was 8.1 percent larger in the first quarter of this year than a year earlier, but virtually all of that growth took place last year. The economy barely grew in the first quarter compared to the fourth quarter of 2011, and the second quarter of this year is likely to show even less growth from the preceding quarter, said Diana Choyleva, a China economist in the Hong Kong office of Lombard Street Research.

The World Bank also warned on Wednesday of a slowdown.

"Clearly the economy is much, much weaker than most people thought until recently," Choyleva said. "They have a real mess on their hands."

Premier Wen Jiabao expressed concern last weekend about the economy after an inspection tour to Wuhan in east-central China. He then led a Cabinet meeting on Wednesday that produced the government's strongest statement yet.

The government should "place stabilizing growth in a more important position and carry out pre-emptive policy adjustments and fine-tuning more forcefully according to the changing situation," the Cabinet statement said.

An accompanying explanatory statement from the official Xinhua news agency posted on the Chinese government's website on Thursday cited Zhang Liqun, a senior economist advising the Cabinet, as saying that, "the sharp slowdown in the economy has aroused attention from policymakers."