China's economic growth rate fell to 7.5 per cent for the three months ending in June, as global demand declined and government efforts to cool a credit boom took hold.
It is the fifth straight quarter of growth below eight per cent, putting new pressure on China’s leaders to stimulate the economy.
Growth in factory production, investment and other indicators weakened over the three-month period, giving rise to fears the Chinese economy may be "at risk of stalling," according to IHS Global Insight analyst Xianfang Ren.
For Canada, the risk is that demand for our commodities, particularly metals, might decline as Chinese manufacturing falters. China is a major buyer of nickel, copper and potash from Canada, as well as wood and wood products. It’s our second biggest trading partner, behind the U.S.
Other natural resource-based economies, such as Brazil and Australia, face the same downside from slowing Chinese growth.
Ian Bremmer, CEO of political research and consulting firm Eurasia Group, says world markets have to expect much more volatility as it deepens its reliance on emerging economies such as China.
"Eighty per cent of the world’s growth comes from emerging markets today. Fifty per cent of the world’s inputs come from emerging markets – there’s much more instability, they’re much more volatile. China’s going to become the world’s largest economy – much more uncertain," Bremmer told CBC News.
"That level of uncertainty that level of volatility the markets for whatever level of growth we have is abnormal, it’s not what we’ve been used to."
He has praise for the Chinese government's efforts to crack down on poor credit practices and said emerging markets such as China need a government ready to intervene in the economy to fix imbalances.
"They're doing it in a very cautious way — they're doing it in the way they moved their currency over the past couple of years. They're using this slowdown to start making more incrementally efficient their system. What they're not doing is say 'oh, we need to create a free market economy.'"
Political risk for Chinese leaders
In China, slowing trade may pose political risk for the new leadership, especially if it misses its annual economic growth target of 7.5 per cent.
Seeing the slowdown in exports, Chinese leaders are trying to shift the country's economy from one reliant on exports and investment to slower, more sustainable growth based on domestic consumption.
In the past year, the government has moved to tighten lending controls at Chinese banks, but that caused a temporary shortage of credit in the country's financial markets last month.
While domestic retail sales are growing — about 12.7 per cent in the first quarter – that is slower than leaders had hoped and a decline of 1.7 percentage points from a year earlier. China's middle-class has taken to consumer spending, but is still cautious and will save money if there are signs of a slowdown.
The Statistic Bureau says growth in factory output slowed to 9.3 per cent for the first half of the year, down 0.2 percentage points from the first quarter. Growth in investment also slipped by 0.8 percentage points to 20.1 per cent.
IMF, Nomura lower forecasts
The International Monetary Fund has already lowered its 2013 growth forecast for China to 7.8 per cent from 8.1 per cent. It believes the slowdown will continue in 2014, and expects growth of 7.7 per cent next year.
On Monday, Nomura economist Zhiwei Zhang cut his growth forecast for 2014 to 6.9 per cent from 7.5 per cent and said growth was likely to bottom out at 6.5 per cent in the second quarter of next year. He said he expects Chinese leaders to cut their growth target for next year to 7 per cent from 7.5 per cent.
"The new leaders made it pretty clear that they care more about the quality and sustainability of GDP growth rather than the speed of it," Zhang told reporters in a conference call.