Apr 15, 3:48 AM EDT

China's slowdown deepens, stepping up pressure on Beijing


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BEIJING (AP) -- China's economic growth slumped to a six-year low as manufacturing and retail sales cooled in the first quarter, stepping up pressure for Beijing to keep its overhaul of the world's second-largest economy on track.

Growth declined to 7 percent from the previous quarter's 7.3 percent, official data showed Wednesday. That was China's weakest performance since the global financial crisis, when growth fell to 6.1 percent in the first quarter of 2009.

Much of the decline has been self-imposed as communist leaders try to steer China to more sustainable growth driven by domestic consumption following the past decade's explosive expansion based on trade and investment. But an unexpectedly sharp downturn over the past year has fueled fears of job losses and social tensions.

"China's economy is slowing at a rate with which the government is probably uncomfortable," said Tom Rafferty of the Economist Intelligence Unit in a report.

Beijing has cut interest rates twice since November and launched targeted measures to help exporters and other industries. But economists note China still depends on state-led construction spending and other investment for nearly half its economic growth.

"We still are relying on a traditional growth engine, and that is declining," said a spokesman for the National Bureau of Statistics, Sheng Laiyun, at a news conference. "We are in transition between the old and new growth models."

On Tuesday, the country's top economic official, Premier Li Keqiang, warned at a meeting with businesspeople and economists that China faces increased "downward pressure," according to a report on the Cabinet's website.

Li called for regulatory changes to nurture new industries, improve efficiency and generate jobs, the report said. It made no mention of possible short-term stimulus measures.

"The adjustment needs support from consumption while the economy adapts to slower investment," said Andrew Colquhun of Fitch Ratings in a statement. "It's sobering that the economy has become so reliant on construction and real estate to generate jobs."

Chinese leaders have repeatedly affirmed their commitment to a "new normal" of slower growth. They say their priority is to make the economy more efficient and productive.

But unexpectedly weak trade and construction, industries that support millions of jobs, have prompted expectations Beijing will boost spending or cut interest rates again to shore up growth.

RBS economist Louis Kuijs said he expects Beijing to cut interest rates at least once this quarter, followed by a second cut if the first fails to produce results.

The first quarter was China's weakest since the global financial crisis, when growth tumbled to 6.1 percent in the first quarter of 2009.

Exports fell 15 percent in March, while housing sales measured by floor space fell 22.5 percent from a year earlier.

Growth in factory output slowed to 6.4 percent from December's 9.8 percent rate, according to Wednesday's data. Investment in real estate, factories and other fixed assets was 13.5 percent, down from last year's 15.7 percent expansion.

Retail sales weakened markedly, with growth slowing to 10.6 percent from 2014's full-year expansion of 12 percent, threatening to undercut official efforts to nurture a consumer-driven economy.

That was the weakest sales growth since 2006, "raising doubts about the stability of consumption amidst the construction and industrial slowdown," said Brian Jackson of IHS Global Insight in a report.

The government spokesman, Sheng, said he had no details of what share of economic growth came from consumption and how much from investment. But he said it should be about the same as last year, when consumption's contribution to overall economic growth rose above half for the first time, reaching 51.2 percent.

This week, the World Bank trimmed its forecast for China's growth to 7 percent this year from 7.1 percent. Earlier, the International Monetary Fund cut its own outlook for China to 6.8 percent from 7.1 percent.

Those rates are well above the low single-digit growth forecasts for the United States and Europe this year but less than half China's peak of 14.2 percent growth in 2007.

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