Goldman Sachs Cuts China Growth Forecast on Country's Real-Estate Market

Goldman Sachs Group Inc. cut its growth forecast for China this year to 10.1 percent from 11.4 percent as government restrictions on lending and real estate slow expansion in the world’s fastest-growing major economy.

Asian stocks fell after the report fanned concern that slower growth in China will undermine the global recovery. Hours after Goldman’s revision, China increased its estimate for last year’s growth to 9.1 percent, signaling output almost matched Japan’s as the world’s second-largest economy.

Goldman joins BNP Paribas, Macquarie Securities Ltd. and China International Capital Corp. in reducing estimates as the government tightens property restrictions to prevent overheating. A third of China economists may cut “overly bullish” forecasts for 2010 and 2011 in coming weeks, Bank of America-Merrill Lynch economist Lu Ting said in a June 30 note to clients.

“China’s growth has been slowing down sharply and the tightening measures we saw in April on property have been quite aggressive,” Isaac Meng, a Beijing-based economist at BNP Paribas, said in a phone interview today.

The government won’t “launch easing measures in the short term as the major concerns, especially about the property bubble, haven’t been fully addressed,” Meng said. BNP this week reduced China’s 2010 growth forecast to 9.8 percent from 10.5 percent.

Manufacturing in the nation, the world’s biggest maker of computers and mobile phones, expanded at the slowest pace in 16 months, a survey of purchasing managers showed yesterday. Stocks declined around the world this week on evidence that a cooling China combined with austerity measures in Europe and slower growth in the U.S. will hurt the global recovery.

Stocks Fall

The MSCI Asia Pacific Index lost 0.3 percent to 111.64 as of 6:06 p.m. in Tokyo, the fourth straight decline. The gauge has slumped 14 percent from its high this year on April 15. The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, slid to its lowest level in 14 months this week.

Liao Qun, a Hong Kong-based economist at Citic Bank International Ltd, today lowered his forecast for China’s growth this year to 10.1 percent from 10.3 percent, citing the property sector, the European crisis and the government’s 0.4 percentage point upward revision to 2009 gross domestic product.

The adjustment put the value of last year’s GDP at 34.05 trillion yuan, the National Bureau of Statistics said in a statement on its website. The figure translates to $4.98 trillion based on the average exchange rate between the yuan and the dollar in 2009, suggesting Japan retained its position as the second-largest economy with output of $5.07 trillion, according to data compiled by Bloomberg.

More Sustainable Pace

Analysts including Sun Mingchun at Nomura Holdings Inc. say China’s moderation is a sign that the government is moving the country to a more sustainable pace of expansion after a 4 trillion yuan stimulus package drove an 11.9 percent rebound in the first quarter.

“The June PMI data confirms that the manufacturing sector still remains in a solid expansion stage,” Sun, a Hong Kong- based economist at Nomura, said in a note yesterday. “If the decline does not continue for too long, it should prove a healthy correction that reduces the risk of the economy overheating.”

China’s economy is moving in the “expected direction,” Premier Wen Jiabao said in meetings with businesspeople and economists this week. Policy makers will “further cement and develop the positive economic trend” amid an “extremely complicated” domestic and global outlook, he said.

Macquarie cut its growth estimate for China to 9.5 percent to 10 percent from a previous 10 percent to 10.5 percent last month and CICC said in May that growth would likely ease to 9.5 percent from a previous estimate of 10.5 percent.

“The momentum of growth has moderated as expected, but we do not see a sharp slowdown in China,” Liu Li-Gang, economist at Australia & New Zealand Banking Group Ltd., said in Hong Kong. “With this moderation, this will be a good thing for policy makers that they don’t have to tighten excessively.”

To contact the reporters on this story: Sophie Leung in Hong Kong at sleung59@bloomberg.net Anna Kitanaka in Tokyo at akitanaka@bloomberg.net

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.