China Q2 economic growth holds steady at 7%, beating forecasts, as stimulus takes effect

Men drive an electric motor past a construction site in Beijing's central business district, on June 11, 2015.
Men drive an electric motor past a construction site in Beijing's central business district, on June 11, 2015. PHOTO: REUTERS

BEIJING (REUTERS) - China's economy grew an annual 7.0 per cent in the second quarter, steady with the previous quarter and slightly better than analyst forecasts, though further stimulus is still expected after the quarter ended with a stock market crash.

It has been a difficult year for the world's second-largest economy. Slowing growth in trade, investment and domestic demand has been compounded by a cooling property sector and deflationary pressures.

Investor confidence was also rattled by a 30 per cent crash in the stock markets last month, which at one point wiped out nearly US$4 trillion in market value before the government stepped in to support the market.

Analysts polled by Reuters had forecast gross domestic product (GDP) in the world's second-largest economy would grow 6.9 per cent in April-June from a year earlier, compared with 7.0 per cent in the March quarter.

On a quarterly basis, the economy grew 1.7 per cent compared with 1.4 per cent in the March quarter, the National Bureau of Statistics said on Wednesday.

Monthly activity data, released alongside the GDP report, also beat expectations to show signs of a rebound, with factory output hitting a five-month high.

The statistics bureau said the changes were "hard won" but added that further moves were needed to consolidate the economic recovery.

Fixed-asset investment rose an annual 11.4 per cent in the first six months of 2015, the bureau said, beating the poll forecast of 11.2 per cent growth.

Industrial output growth quickened to 6.8 per cent, surprising analysts who expected it to rise 6 per cent on an annual basis after a rise of 6.1 pe rcent the prior month.

Retail sales quickened to 10.6 per cent, compared with expectations for a 10.2 per cent gain.

To boost the economy, China's central bank on June 27 cut lending rates for the fourth time since November and trimmed the amount of cash that some banks must hold as reserves, stepping up efforts to support an economy that is headed for its poorest annual growth in a quarter century.

Data on Tuesday showed bank lending increased sharply in June, thanks to central bank support, but how much of that new credit flowed into the real economy, as opposed to supporting stock market speculation, is unclear.

Other economic indicators have been mixed. The China Beige Book survey showed evidence of a broad-based recovery in the second quarter, and real estate markets - a key driver of domestic demand - have also shown some signs of recovery.

But even the most optimistic readings have included a caveat. Businesses have continued to hold back from long-term investment, concerned about the high costs of finance - estimated by the central bank at nearly 7 per cent, far higher than average returns of between 2 and 4 per cent.

The government has forecast economic growth of around 7 per cent for 2015, which would be the weakest rate in 25 years.