Signs of weakening in China's car market and services sector are stoking fears that the world-leading Chinese economy is starting to falter.
Sales growth in the world's largest auto market is beginning to slow, while a service industry index is now at its lowest level in more than a year.
June passenger car purchases in China rose by 10.9 per cent from a year earlier, down from a 25 per cent advance in May, according to the China Automotive Technology and Research Center.
Meanwhile, the HSBC Holdings PLC and Markit Economics Services-Industry Index, which tracks purchasing by more than 400 Chinese companies in transport, technology, hotels and restaurants, fell to 55.6 from 56.4, a 15-month low.
The weakening economic data follows weekend comments from Chinese Premier Wen Jiabao who warned that China's economy, which is leading the world out of a widespread downturn, is facing mounting difficulties.
"China's current economy remains good, but the domestic and international environment is extremely complicated," Mr. Wen said, addressing a symposium in Changsha, the capital of central China's Hunan province.
Slowing growth in car sales would affect consumption of materials such as steel, aluminum and oil, which will in turn, reduce China's demand for commodities from countries including Canada.
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Amid the global economic slowdown, China posted a world-leading increase in gross domestic product of 8.7 per cent in 2009 and a red-hot 11.9 per cent on an annual basis during the first quarter. Now there are worries slowing domestic spending coupled with the impact of Europe's sovereign debt crisis will reduce demand for Chinese goods. Last week, Goldman Sachs Group Inc. cut its 2010 China GDP forecast to 10.1 per cent from 11.4 per cent.
The Shanghai Composite Index lost 0.8 per cent on Monday to close at a 15-month low. China's benchmark equity index has declined 28 per cent so far this year.
"The big theme remains the cooling Chinese economy and its impact on global growth," currency strategists at BNP Paribas said in a note to clients Monday.
The investment bank said that developments within Asia's main trading hubs such as Singapore and Hong Kong are serving as a barometer for the region's economic performance and pointed out that the Hong Kong purchasing manager's index slipped to a 9-month low, dropping to 52.6 from 53.2.
Fears of asset bubbles in real estate and investment have prompted Chinese authorities to introduce a series of measures aimed at cooling prices.
Most recently, China's banking regulator ordered trust companies to halt the launch of wealth management products. BNP Paribas said the ban will close off yet another funding channel for many investment projects, particularly in the property and infrastructure sectors.
"Infrastructure and property investments are commodity intensive, suggesting commodity prices will come under additional pressure," BNP's currency strategists said.
Two weeks ago China began allowing its currency, the yuan, which is also known as the Renminbi, to begin gradually appreciating against the U.S. dollar, a move that could help rein in inflation. However, a stronger yuan, coupled with rising wages for China's migrant factory workers, is expected to increase costs for Chinese manufacturers that remain the lifeblood of China's strong economy.
With files from Bloomberg News