China surprises with 7% GDP growth in Q2

A construction site in Beijing. China's National Bureau of Statistics yesterday said the economy grew 7 per cent in the second quarter, better than economists' estimates of 6.8 per cent. Some analysts questioned the accuracy of the data, implying tha
A construction site in Beijing. China's National Bureau of Statistics yesterday said the economy grew 7 per cent in the second quarter, better than economists' estimates of 6.8 per cent. Some analysts questioned the accuracy of the data, implying that the numbers are more about reassuring investors than true reflections of performance.PHOTO: EUROPEAN PRESSPHOTO AGENCY

Result lifts global outlook but fall in Chinese bourses a reminder of threat to economy

BEIJING • China's economy grew an annual 7 per cent in the second quarter, beating analysts' forecasts, though its volatile stock markets took a sharp dive in a reminder of the threats to Beijing's efforts to direct the economy out of a slowdown.

The result buoys prospects for Prime Minister Li Keqiang's 2015 growth target and the outlook for the world economy, with China stabilising and the United States forecast to accelerate.

China's National Bureau of Statistics (NBS) yesterday said gross domestic product was unchanged from the first quarter and better than economists' estimates of 6.8 per cent, while fixed-asset investment increased 11.4 per cent in the first half.

"Downside risks are getting smaller," said said chief China economist Ding Shuang at Standard Chartered in Hong Kong. "A modest recovery is expected in the second half."

Some analysts, who on average had tipped GDP to rise 6.9 per cent, questioned the accuracy of the data, implying the numbers are more about reassuring investors than true reflections of performance.

ENCOURAGING

While actual growth is almost certainly a percentage point or two slower than the official figures show, there are good reasons to think that the latest figures are mirroring a genuine stabilisation.

MR JULIAN EVANS-PRITCHARD, economist at Capital Economics

"While actual growth is almost certainly a percentage point or two slower than the official figures show, there are good reasons to think that the latest figures are mirroring a genuine stabilisation," wrote Mr Julian Evans-Pritchard, economist at Capital Economics in Singapore. "There is growing evidence of an improvement in the wider economy."

Yesterday began on a positive note with the growth figures and monthly activity data that also beat expectations across the board, with factory output at a five-month high, following reports of increased bank lending on Tuesday.

As the NBS released the upbeat figures, it described the stock markets as key to economic stability. And as if on cue, the key indexes, already down in morning trade, fell more than 4 per cent in the afternoon. The CSI300 index shed 3.5 per cent, and the Shanghai Composite Index lost 3 per cent.

"Investors liquidated their positions as the GDP data failed to impress," said Mr Steven Leung, director at UOB Kay Hian in Hong Kong.

Policymakers had already unleashed a series of measures to pull stocks out of a 30 per cent nosedive and appeared to have succeeded last week, but yesterday's tumble could reawaken concerns over the government's ability to manage the economy.

It has been a difficult year for the world's second-largest economy, with slowing growth in trade, investment and domestic demand compounded by a cooling property sector, deflationary pressure, then the equity market panic from the middle of last month.

Beijing will need to keep providing liquidity to the stock exchanges and cut the cost of corporate financing, which remains far higher than returns on investment for many companies.

Economists have also called for more direct fiscal stimulus to help support heavily indebted local governments.

REUTERS, BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on July 16, 2015, with the headline 'China surprises with 7% GDP growth in Q2'. Print Edition | Subscribe