China posts 6.7% growth in Q2

A fashion shoot at a shopping mall in Beijing. China's retail sales growth has been a bright spot for the economy this year.
A fashion shoot at a shopping mall in Beijing. China's retail sales growth has been a bright spot for the economy this year. PHOTO: AGENCE FRANCE-PRESSE

But private investment growth shrinks to record low, suggesting more support measures possible

BEIJING • China's economy expanded slightly faster than expected in the second quarter but private investment growth shrank to a record low, suggesting weakness which could pressure the government to roll out more support measures.

Property investment, which has given the world's second-largest economy a welcome boost in recent months by spurring demand for products ranging from cement to steel, also showed signs of fatigue in June, with growth cooling for a second month.

While fears of a hard landing have eased, investors worry a further slowdown in China and any major fallout from Brexit would leave the world even more vulnerable to the risk of a global recession.

China's economy grew 6.7 per cent in the second quarter from a year ago, unchanged from the first quarter but still the slowest pace since the global financial crisis, data showed yesterday. Analysts had expected it to dip to 6.6 per cent.

Growth in investment by private firms, which accounts for over 60 per cent of total investment, fell to a record low in the first half, as businesses retrench in face of the sluggish economic outlook.

"While there was a big pick-up in retail sales, the slowdown in fixed asset investment is a worry," said Mr Tim Condon, chief economist for Asia at ING.

Fixed asset investment growth in the first half slowed to 9 per cent, the weakest since March 2000. "We think GDP growth is likely to slow in Q3 and may rebound in Q4 driven by post-flood reconstruction activity. But the rebound will not last long," said Nomura economist Wendy Chen.

China's Statistics Bureau said the economy still faces downward pressure, but added that the first-half performance lays a good foundation for achieving the government's full-year growth target of 6.5 to 7 per cent, which some market watchers believe is ambitious.

"Solid GDP in Q2, which is likely to have been led by property and construction, is unlikely to be sustained. Property investment grew 6.1 per cent in the first six months, lower than 7 per cent in January to May. Therefore, the property-led recovery has ended," economists at ANZ said in a note.

State firms hiked investment 23.5 per cent in the first half, and government spending rose 19.9 per cent last month. That spending spree and higher commodity prices have benefited long-ailing manufacturers. Retail sales growth also accelerated to 10.6 per cent.

A pick-up in consumption and the service sector is one bright spot for Beijing's efforts to rebalance the economy away from its past reliance on investment and exports.

REUTERS

A version of this article appeared in the print edition of The Straits Times on July 16, 2016, with the headline 'China posts 6.7% growth in Q2'. Print Edition | Subscribe