China AFTER decades of blistering growth, Chinese authorities now seem ready to accept a slower pace of expansion. Economic growth has slowed for the second consecutive quarter. GDP expanded by 7.5 per cent in the second quarter of 2013, down from the 7.7 per cent annual growth recorded in the first three months of the year.

The performance of China`s economy was generally stable and within expectations, but it faces grim challenges nonetheless, according to the National Bureau of Statistics. The figures showed that weak trade data and actions by authorities to rein in bank lending contributed to the slower growth. China`s GDP has been under eight per cent for five straight quarters now. The government has set a target of 7.5 per cent growth for the entire 2013, which would mark the lowest rate of expansion in more than two decades.

The IMF has already lowered its 2013 growth forecast for China to 7.8 per cent from 8.1 per cent. It believes that the slowdown will continue in 2014, and cut its growth forecast for the year to 6.9 per cent from 7.5 per cent. It also expects the Chinese authorities to cut their growth target for next year to seven per cent from 7.5 per cent. In 2012, growth had slumped to 7.8 per cent, which was then the worst performance by the world`s second-biggest economy in 13 years.

Growth is falling as the government aims to rebalance the economy, placing less emphasis on short-term export and investment-driven growth, and more on consumer spending. Some economists fear that Beijing`s attempt at a soft landing for the economy might fail. They urge the government to provide more fiscal stimulus to bolster falling growth.

A slowdown in economic activity in China has a global impact, as companies that sell to the Asian giant may see revenues suffer. Countries like Australia and Brazil, as well as others in South East Asia, have seen huge profits in recent years because of China`s demand for natural resources. The fall in demand from China has already had an impact on the prices of many of these commodities, including copper.

China is also facing challenges on the trade front. Exports forecast for the third quarter looks grim. The government has reported surprise falls in both exports and imports so far this year. The latest figures suggest that exports fell 3.1 per cent in June compared with the same month a year ago, to reach $174 billion. Imports dropped 0.7 per cent to $147 billion, resulting in a trade surplus of about $27 billion. The slowdown in exports is attributed to weak overseas demand for Chinese goods and services, as well as to rising labour costs, a stronger national currency, and the effects of the country`s growing trade disputes with other countries.

Meanwhile, in recent months, the Chinese central bank has repeatedly expressed concern about an unsustainably high growth rate of credit, saying that this was fueling bad investments that threaten to weigh in on the country`s long-term growth prospects. The central bank`s restrictive monetary policy has led to a squeeze in credit, leading to a situation where institutions are unwilling to lend to each other and to smaller businesses, which have become increasingly dependent on the so-called shadow banking.

Some economists fear that the number of bankruptcies could rise in the second half of 2013.

India ECONOMIC growth in India fell to a decade-low of five per cent in fiscal 2012-13, after a 6.2 per cent increase in 2011-12, and annual rates of over nine per cent for a row in a number of years before the global financial crisis of 2008.

High inflation and burgeoning fiscal and current account deficits are exerting pressure on growth. The current account deficit was at a record high of 4.8 per cent of GDP in FY2013, but is likely to narrow down in the me dium term.

The Indian finance minister sees the economy grow by six per cent in the current fiscal year ending March 2014. The government has taken a number of steps to improve exports, as well as production of coal and gas. The government has also significantly hiked investment in public sector enterprises.

According to the latest World Bank update, economic growth is likely to accelerate to over six per cent during April 2013-March 2014. Growth is expected to increase further to 6.7 per cent in 2014-2015. But the IMF has cut its growth projection for 2013-14 to 5.6 per cent from 5.8 per cent it had projected in April, due to slowing credit growth and the prospect of the US Fed unwinding easy-money policies aggravating a slowdown in emerging markets.

Meanwhile, the Asian Development Bank predicts that the slow progress on economic reforms is expected to pull down India`s growth to 5.8 per cent in 2013, from six per cent projected earlier, but still higher than the five per cent the country had posted in 2012. As reflected in the continued slowdown in fixed capital formation, weakness in the industrial sector, and sluggish progress in pushing through badly needed structural reforms, growth remained constrained by supply-side bottlenecks in 2012.

The growth rate is expected to accelerate in 2014, as slower inflation provides some scope for monetary easing that could boost investment and consumption. Growth will be further boosted by pre-election spending, and a pickup in US growth will support Indian tech companies and related service sectors.

The Organisation for Economic Cooperation and Development (OECD) had projected last November that the Indian economy would grow by 5.9 per cent in 2013, but has recently lowered the projection to 5.3 per cent, and cautioned that structural bottlenecks in the country could further constrain investment and growth potential. GDP growth is projected to rise gradually over the next two years. India is likely to improve growth to 6.7 per cent next year. The large current account deficit may, however, make it difficult to significantly cut interest rates.

The high current account deficit witnessed during 2012-13, and it`s financing, increasingly through debt flows, particularly trade credit, resulted in significant increase in India`s external debt during 2012-13. India`s external debt rose by nearly 13 per cent to $390 billion in 2012-13, mainly due to a rise in short-term trade credit and external commercial borrowings on the back of high current account deficit, according to the Reserve Bank of India. The total external debt was about $345.5 billion at end-March 2012.

India has accumulated a huge short-term debt with residual maturity of one year after 2008, and comprises around 25 per cent of the total external debt. It also now comprises nearly 60 per cent of the country`s total foreign exchange reserves. The short term debt has gone up over three times due to unprecedented widening of the current account deficit, from roughly 2.5 per cent in 2008-09 to nearly five per cent in 2012-13. India`s short-term debt maturing within a year stood at $172 billion at end-March 2013. The country will have to pay back $172 billion by March 31, 2014. The corresponding figure in March 2008 before the global financial meltdown that year was just $54.7 billion.

But the magnitude of the increase in external debt was offset to some extent due to valuation change (gain) resulting from appreciation of the dollar against the Indian rupee and other currencies.

US Federal Reserve Chairman Ben Bernanke`s hint that the central bank could roll back its easy-money policy seems to have suddenly increased India`s vulnerability to slowing capital flows in the near future. A declining rupee and the Fed`s possible change of stance on easy liquidity in the future would be of particular concern.

South Korea SOUTH Korea raised its economic growth forecast for 2013 as it expects stimulus efforts to `start taking effect on a full scale` later in the year. Asia`s fourth largest economy is likely to grow 2.7 per cent, up from the 2.3 per cent projected in March, on the backs of a big fiscal stimulus package and a modest recovery of the global economy, the government believes.

Meanwhile, the Ministry of Strategy and Finance forecasts 2014 GDP growth at four per cent.

The Korean Parliament in May approved extra government spending of $14.97 billion for creating jobs and supporting the property market and small companies. The government sees the consumer price index rising 1.7 per cent, rather than 2.3 per cent compared with the central bank`s target range of 2.5 cent to 3.5 per cent. Its current account surplus forecast is now $38 billion, and the country expects to create 300,000 jobs this year.

However, the OECD has lowered its 2013 economic growth forecast for South Korea from 3.1 per cent to 2.6 per cent. The economy grew two per cent last year the slowest in three years. It grew 3.6 per cent in 2011. To boost the sluggish economy, the central bank cut its benchmark interest rate by 25 basis points to 2.5 per cent in early May, and the finance ministry unveiled the $14.97 billion fiscal stimulus in mid-April.

South Korea`s central bank, on the other hand, raised its economic growth forecast for this year to 2.8 per cent from its earlier estimate of 2.6 per cent. The forecast by the Bank of Korea is also higher than the government`s revised growth forecast for the year.

Private consumption, one major growth engine of the economy, is predicted to expand 2.1 per cent in 2013, before jumping 3.6 per cent in 2014.

Also, concerns that Japan devaluing its currency would hurt South Korea`s export-dependent economy, proved to be ill-founded, as the Korean economy is doing fine. South Korea directly competes with Japan in many industries, like car manufacturing, and relies on exports for up to 60 per cent of its GDP. For that reason, the sharp devaluation of the Japanese yen had earlier seemed a dangerous prospect that would make South Korea`s competing goods more expensive to foreign buyers.

Helped by the won`s downturn, South Korean exports grew by 7.4 per cent in May from 3.6 per cent in April, offsetting the negative impact from a weaker Japanese yen. The current account surplus hit a new record high of $8.64 billion last month, thanks to brisk exports. South Korea posted a trade surplus for 16 straight months due to solid demand for locally-made IT products like chips and smart phones. The trade surplus was $5.92 billion in May, more than doubling from a surplus of $2.4 billion in the prior month.