ZheGang Garment

China''s economy slowed in the second quarter as the government steered monetary and fiscal policy back to normal after a record credit surge last year to counter the global crisis.

Annual gross domestic product growth moderated to 10.3 percent from 11.9 percent in the first quarter, the National Bureau of Statistics (NBS) said on Thursday. The reading was slightly below market forecasts of 10.5 percent growth.

Inflation cooled to 2.9 percent in June, the statistics bureau also reported in Beijing today. Industrial output rose a less-than-estimated 13.7 percent.

Economists expect no dramatic policy response to Thursday''s data. The government has engineered the slowdown -- markets feared overheating earlier this year -- and Premier Wen Jiabao has said the economy is going in the expected direction.

"The GDP and other activity data are basically in line with expectations, and consistent with our view that China''s recovery is slowing from the fast pace set in the first quarter but remains relatively solid so far," said Brian Jackson, strategist at Royal bank of Canada in Hong Kong.

Factory growth slowed to 13.7 percent in the year to June, below forecasts for 15.3 percent and May''s 16.5 percent growth.

"The good news is the economy is holding up. The bad news is investment is coming down, hence demand for commodities will fall," said Dong Tao, chief non-Japan Asia economist for Credit Suisse in Hong Kong.

The Shanghai stock market edged up 0.5 percent and stocks in Asia-Pacific outside Japan pared early losses and were broadly steady in a sign of relief that the data brought no major negative surprises.