THE CHINESE economy showed signs of a deeper slowdown than expected yesterday, prompting speculation about the strength of the global economic recovery.

New data indicated that China’s manufacturing sector grew at the slowest pace in 17 months in July, with the lower level of activity attributed to a government clampdown on property speculation and investment in energy-intensive and polluting factories.

A more pronounced Chinese slowdown could weaken a global recovery already constrained by the debt burdens and unemployment of advanced economies.

While growth is cooling, China’s full-year economic expansion may be as much as 9.5 per cent, up from 9.1 per cent in 2009, State Council researcher Zhang Liqun said yesterday.

“The Chinese economy is slowing down mainly due to the ongoing property tightening measures,” said Lu Ting, a Hong Kong-based economist at Bank of America-Merrill Lynch.

“Beijing will surely ramp up spending on public housing and other public works to stabilize growth.”

The Purchasing Managers’ Index (PMI) fell to 51.2 from 52.1 in June, the Federation of Logistics and Purchasing said on its website yesterday. A reading above 50 shows an expansion.

Beijing has introduced a slew of measures to brake property prices in big cities, including higher mortgage rates and down payments for non-owner-occupiers.

The People’s Bank of China, the Chinese central bank, said it would instruct banks to ensure a “reasonable” pace of lending and would curb credit to energy-intensive industries. The government will “strictly” enforce home mortgage policies to promote a healthy and stable real estate market, according to the central bank.

Recovery in the global economy has looked far from convincing in recent months. The biggest economy in the world, the US, grew at a slower pace in the second quarter as unemployment capped consumer spending, it emerged on Friday.

From the UK to Japan, government efforts to cut debt may weigh on demand.

China, the world’s biggest exporter, has been buoyed this year by demand for shipments climbing to pre-crisis levels and even beyond.

“If exports hold up, China’s slowdown should be moderate and not require a reversal of policy,” said Brian Jackson, an emerging markets strategist for Royal Bank of Canada. “But if weakness in the euro-area and the US does major damage to Chinese exports, Beijing will likely face pressure to deliver a renewed surge in investment spending.” – (Bloomberg/ Reuters)