China's Economy To Slow....

Chinese economy to slow as the government extends stimulus to contain inflation appreciation 

Economic growth in China may retreat during the second quarter of this year as the government tightened monetary policy and cracked new stimulus to cool inflation gains, caused to slow manufacturing sector. 

The Chinese economy issued the PMI manufacturing reading for the month of May which rose to 52.0, compared with a previous reading 52.9 in April, while the analysts' expectations referred to.51.7. 

Moreover, the PMI manufacturing reading came above 50 indicates a recovery of the industrial sector in China is witnessing slower improvement in May, which give a slight positive signs to economic growth in China, while the government works to calm inflation appreciation. 

In the first three months, China's Gross domestic product has expanded 9.7%, faster than expected rate, indicating an economical expansion supported by the improved exports rates in China, along side the increase of row materials and energy prices enabled the Chinese companies to generate more profits. 

This fast pace economical expansion supported the consumer price index (CPI) to accelerate near the fastest pace in more than two years, above the government’s target, pushed the government to move to rise interest rate for the fourth time since October 2010. 

High inflation rates is considered to be a threat to the economical growth experienced by China where officials are trying to halt this increasing pace of inflation by imposing tightening policies and increasing interest rates 4 times since October, which will adversely affect the production and consumption level that creating a negative impact on the GDP. 

At the meantime, there are signs indicate that the economy is cooling the increases gain in industrial production, while the sales of vehicles retreated in April and power shortages will hurt the nation’s expansion. The government is raising electricity prices for businesses and farmers in 15 provinces starting today, giving an incentive for generating. 

During May, China ordered banks to set aside more cash for the third time this year, judging that inflation accelerates, as the economic growth grew faster than market's expectations along with the consumer prices index rose by the most since 2008. 

Reserve requirements will increase half a percentage point from March 25; the ratio will rise to 20.5 percent for the nation’s biggest banks, came less than two weeks after the central bank boosted benchmark interest rates. 

The government in China aims to contain the fastest inflation in the second three months of 2011 without hurting the economic growth, so we can see that the government in embarrassing situation to keep the economic growth on the track. 

The Chinese industrial production showed much progress over the past few months and it rebounded. This came alongside recovering demand as China's main trade partners are emerging from recession. Thus, the manufacturing sector helped the world's third largest economy to expand 9.7% in the 1st quarter. 

Yet, growth witnessed in the Chinese manufacturing sector may slow amid concerns about an absence of governments' aids that may force global markets to hold and wait for more signs of recovery from major economies after stimulus spending is reduced.