July 19 (Bloomberg) -- China, which accounted for a 10th of global economic growth last year, probably expanded at a slower pace in the second quarter as the government restricted investment to ease power shortages and keep inflation in check.

Gross domestic product likely rose 9.2 percent from a year earlier, according to the median estimate of 13 economists surveyed by Bloomberg News, after climbing 9.4 percent in the first quarter. The National Bureau of Statistics is due to report second-quarter growth tomorrow at 10 a.m. in Beijing.

By avoiding a slump, China -- the world's biggest consumer of steel, copper and coal and the No. 1 export market for Japan, South Korea and Taiwan -- may help sustain global expansion as growth cools in Europe. Germany's economy, Europe's largest, probably stagnated in the second quarter, the country's central bank said yesterday.

``A slowdown of this magnitude is not very significant for the global economy,'' said Andrew Freris, chief Asia economist at BNP Paribas SA in Hong Kong. ``Last year we had a structural imbalance in the Chinese economy and what we have seen is a very careful structural approach to removing those imbalances.''

Growth will likely slow to 8.6 percent in the third quarter and 8.2 percent in the fourth as a two-year investment boom cools, the nation's top planning agency, the National Development and Reform Commission, said in a report published in state media on July 13. Fixed-asset investment, which accounts for more than a third of China's economy, will probably increase 19 percent this year after climbing 25.8 percent in 2004, it said.

Investment Cools

Investment in factories, bridges and other fixed assets in urban areas likely increased 25.3 percent in the first half after climbing 26.4 percent in the first five months of the year, a Bloomberg survey showed. Investment figures for the first half, along with June statistics for industrial production, retail sales and inflation may be released at a press briefing after second-quarter GDP figures are released tomorrow in Beijing.

Industrial production growth probably slowed to 16 percent from 16.6 percent in May and retail sales likely increased 12.8 percent, Bloomberg surveys showed. Consumer prices probably rose 1.6 percent in June, which would be the smallest gain since September 2003, and producer-price inflation may have slowed to 5.7 percent from 5.9 percent the previous month.

Should tomorrow's figures indicate a sharp slowdown in China's growth, that may make the government more reluctant to act on U.S. and European calls for the yuan to be allowed to appreciate, said Tim Condon. China has pegged its currency at about 8.3 to the U.S. dollar for the past decade and the nation's biggest trading partners say the link gives Chinese exporters an unfair advantage.

Trade Tensions

``Calm economic conditions would seem to be a precondition for a move on the currency,'' said Condon, chief Asia economist at ING Bank in Singapore. ``Any sign that growth is accelerating or decelerating too quickly lessens the likelihood of an exchange rate reform.''

The U.S., China's No. 1 export market, had a record $162 billion trade deficit with the Asian nation last year, according to U.S. data, and the gap widened 33 percent to $72.5 billion in the first five months of this year. China's customs bureau on July 11 reported a trade surplus for the first half of $39.6 billion, surpassing the $32 billion reported for the whole of 2004.

U.S. Treasury Secretary John Snow told senators in a meeting at the end of June that he believed China would move to allow the yuan to strengthen in August, the Financial Times reported July 15. His assurances helped delay a Senate vote on a bill that would impose a 27.5 percent tariff on Chinese imports unless the yuan is revalued, the report said.

Loosening Policy

Economists have become more optimistic that the Chinese government will achieve a gradual slowdown. Growth will probably ease to 9 percent this year from 9.5 percent in 2004, the Bloomberg survey showed. The median forecast in an April survey showed they were predicting an 8.5 percent expansion.

ING's Condon said the government may be loosening monetary controls to prevent the economy slowing too rapidly. New yuan loans rose in June for the first time this year and M2, the broadest measure of the money supply, grew faster than the central bank's target for the first time in 11 months.

``A sharper than anticipated slowdown might rekindle fears that growth is slowing too quickly,'' said ING's Condon. ``The apparent loosening of monetary policy we saw in June suggests that could be the case and, if so, investor anxiety about China's economy could rise again.''

Jobs

No new tightening measures should be introduced for the time being to maintain economic stability, Qiu Xiaohua, deputy director of the National Bureau of Statistics told lawmakers on July 15, the official Xinhua news agency said.

Premier Wen Jiabao has set a target of creating nine million jobs in towns and cities this year to keep urban unemployment -- which officially stood at 4.2 percent in the first quarter -- below 4.6 percent.

A one percentage point drop in economic growth would cut demand for workers by 900,000, damping job prospects for migrant workers, Ma Xiaohe, director of the planning agency's Industrial Development Institute wrote in the China Daily on July 15.

``China needs a growth rate of at least 8 percent a year to support job creation and ensure social stability, economic stability and political stability,'' said Zuo Xiaolei, chief economist at Galaxy Securities, China's largest brokerage by outlets and trading volume.

To contact the reporter for this story: Nerys Avery in Beijing at navery1@bloomberg.net

Last Updated: July 18, 2005 12:01 EDT