China's economy set to slow to 6.8 per cent in Q2

04 May 2015

The second quarter is expected to see a further slowdown to 6.8 per cent in the Chinese economy after a six-year low, according to a report by a top government think tank. The report highlighted the need for additional stimulus to shore up faltering growth.

The projection by the State Information Centre backs the move by China's central bank last month to cut the amount of cash that banks needed to hold as reserves, the second industry-wide cut in two months, to combat slowing growth.

''China's economic growth will slow in the second quarter [of this year], impacted by structural reform,'' the think tank said in its research report published in the official China Securities Journal on Monday.

China's economy registered an annual 7.0 per cent growth in the first quarter, its slowest pace in six years. Recent data too had also failed to impress, with analysts saying the authorities would need to inject more stimulus to prevent a sharper downturn.

Meanwhile, even as the economy slowed down, amid warnings from the country's top leaders China's share markets doubled in value in the past year and adding over $5 trillion to market capitalisation.

The daily turnover of the Shanghai Stock Exchange's exceeded that of Wall Street's New York Stock Exchange for the first time in its history last month.

The amount of investor borrowings to buy stocks had quadrupled from a year earlier, on the back of a recent surge in margin trading, which, in turn, was often funded by China's infamous shadow lending sector.

Investors continue to enter the market at an increasing rate with 5 million new trading accounts opened in March, while only last week, another 3.3 million new share accounts were created; 10 times more than normal.

According to many economists and demographers the market frenzy pointed to the  lack of a comprehensive social welfare net in China, a major reason for its people's conservatism and a high savings rate.

However, the inverse also held true, and many, especially younger Chinese, were entrepreneurial and inclined to take risks, especially when there was fast money to be made.

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