China GDP growth tops forecasts on strong investment

Asian economy grew 6.9 per cent in second quarter from year earlier

A worker carries a steel bar at a construction site of a residential building in Huzhou, China

A worker carries a steel bar at a construction site of a residential building in Huzhou, China

 

China’s economy continues to defy analysts’ expectations for a slowdown, with GDP expanding 6.9 per cent in the second quarter from a year earlier, the National Bureau of Statistics said on Monday.

The strong June quarter performance in the world’s second largest economy came on the back of expansion in industrial production and investment, with exports recovering and the building industry in an upswing.

Growth was slightly ahead of economists’ forecasts for 6.8 per cent expansion and means first half GDP growth was 6.9 per cent year-on-year to about 38.15 trillion yuan (€4.91 trillion).

However, pressure is expected to continue in the second half because of financial risks from rising government debt, overcapacity in the manufacturing industry and an ongoing property boom.

“Overall, the economy continued to show steady progress in the first half . . . but international instability and uncertainties are still relatively large, and the domestic long-term build-up of structural imbalances remain,” the statistics office said in a statement accompanying the data.

The government target is for 6.5 per cent growth this year, slightly below the 6.7 per cent notched up last year, which was the slowest expansion in 26 years.

Output from China’s factory fates was up 7.6 per cent in June, compared with an estimated 6.5 per cent increase and the fastest pace of growth in three months, while fixed-asset investment expanded 8.6 per cent in the first six months of the year.

Retail sales

Retail sales rose 11 per cent in June from a year earlier, the fastest pace since December 2015 and beating a median estimate for a 10.6 per cent rise.

“It shows that Beijing’s financial deleveraging was well timed and carefully targeted not to have much spillover on the real economy,” Rob Subbaraman, chief economist for Asia ex-Japan at Nomura Holdings in Singapore, told Bloomberg. “Fiscal stimulus remains an important driver of growth. It’s also encouraging to see more signs of rebalancing with the pickup in retail sales growth.”

Last week, the International Monetary Fund raised China’s GDP growth forecast for 2017 to 6.7 per cent, compared to its previous forecast of 6.6 per cent.

There is much debate in China right now about introducing supply-side reforms to cut excess capacity in steel and coal sectors.

This weekend saw a two-day national financial work conference aimed at “making the financial sector better serve the real economy, containing financial risks and deepening financial reforms”.

President Xi Jinping said the reforms would prioritise direct financing and optimise the indirect financing structure by accelerating strategic transformation of state-owned major banks and developing small and medium-sized banks and private financial institutions.

He also said that government would make stronger efforts to guard against systemic financial risks, and develop laws and regulations governing the financial sector, something of which overseas investors often complain.

China “will further open up its financial market to promote the internationalisation of the yuan and capital account convertibility in a steady pace,” Xi said.

(Additional reporting Bloomberg)