China’s economy eases as exports slow

BEIJING (Reuters) – China grew 11.4 percent in 2007, the fastest pace in 13 years, but is headed for a modest slowdown this year as global demand weakens and credit curbs to cap inflation ripple through the economy.

The softening was evident in figures issued on Thursday showing that annual gross domestic product growth eased to 11.2 percent in the fourth quarter from 11.5 percent in the July-September period and 11.9 percent in the second quarter.

Still, 2007 marked the fifth consecutive year of double-digit growth for China, which is on course to overtake Germany as the world’s third-largest economy this year and is growing in importance as a locomotive for global growth.

Average growth over the last five years has been 10.6 percent.

The ruling Communist party, economists say, wants above all to avert an economic hard landing that could sap its legitimacy as it prepares to show off China to the world in August’s Olympic Games.

Yet China is also wary of inflation, which has touched off social unrest many times in the past.

Although consumer price inflation slowed to 6.5 percent in December from an 11-year high of 6.9 percent in November, factory-gate inflation jumped to 5.4 percent from 4.6 percent.

This leaves China in much the same position as the European Central Bank: aware that it might need to ease policy to prop up the economy, but worried that inflation is above target.

To cap inflation and prevent overheating, Beijing raised interest rates six times last year and gave banks blunt orders to lend less. Alarmed by surging prices, the authorities this month also froze energy and transport tariffs and imposed temporary price controls on food — the fount of the latest spike in inflation.