China Central Bank Adviser Says Chance of Deflation Is Small
07/21/2012| 06:48am US/Eastern
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BEIJING--The possibility of deflation in China is small and growth in the world's second-largest economy is expected to stabilize in the second half of this year, Song Guoqing, an adviser to the central bank said Saturday.
Growth in China's gross domestic product slowed to 7.6% from a year earlier in the second quarter, down from 8.1% in the first quarter and its lowest level since the beginning of 2009, dragged down by sluggish demand and exports as well as stagnant real-estate investment.
China has taken a series of measures, such as cuts in banks' reserve-requirement ratios and interest rates, to revive growth.
Mr. Song said he expects domestic demand to remain weak and inflation to continue to moderate in the coming months.
But he said borrowing costs remain at a high level for Chinese companies, and declining profits are reducing companies' willingness to invest.
China's slowing growth has begun to hit the bottom line at a number of domestic companies. In recent weeks, major Chinese companies including electronic-equipment maker ZTE Corp. (ZTCOY, 0763.HK, 000063.SZ), China Eastern Airlines Corp. (CEA, 600115.SH, 0670.HK), retailer Suning Appliance Co. (>> Suning Appliance Co., Ltd.) and electronics maker TCL Communication Technology Holdings Ltd. (2618.HK) have warned results would be lower than expected.
The People's Bank of China has reduced interest rates twice since June to make borrowing more attractive. However, many business officials have argued that interest rates aren't inhibiting them from borrowing more, but lack of demand is the problem.
Write to Grace Zhu at grace.zhu@dowjones.com
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