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China logs higher growth

July 17, 2017

Between April and June, the world's second largest economy grew faster than expected as industrial output and consumption picked up and investment remained strong. But the momentum may not last for the rest of the year.

Symbolbild Export China
Image: picture-alliance/dpa

China's major stock indexes recouped sharp early losses on Monday as latest growth data from the world's second largest economy surprised on the upside, buoying earnings prospects for the country's companies.

The economy grew 6.9 percent in the second quarter from a year earlier - the same rate as the first quarter, the National Bureau of Statistics said. Analysts polled by Reuters had expected the economy to expand 6.8 percent in the April-June quarter.

"The national economy has maintained the momentum of steady and sound development in the first half of 2017, laying a solid foundation for achieving the annual target and better performance," statistics bureau spokesman Xing Zhihong said.

Xing also noted, however, that China must be aware that there were "still many unstable and uncertain factors abroad and long-term structural contradictions remain prominent at home."

The government is aiming for growth of around 6.5 percent in 2017, slightly lower than last year's actual 6.7 percent, which was the weakest pace in 26 years. Therefore, the second-quarter upturn could be a boon for the country's leaders as they seek to contain a dangerous build-up in debt that has ballooned to 277 percent of gross domestic product (GDP).

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Slowdown in the cards

The main drivers of Chinese growth were industrial production, growing 7.6 percent in June alone, and retail sales, which climbed 11 percent.

But most analysts agree that the upswing may not last for the rest of the year. Julian Evans-Pritchard, China economist at Capital Economics, said in a note: "The recent crackdown on financial risks has driven a slowdown in credit growth, which will weigh on the economy during the second half of this year."

Craig James, chief economist at Commonwealth Securities in Sydney believes though that measures to be taken by the central bank will not be so severe. "Based on this data, there is no need for easing and no need really for tightening either because inflationary pressures are very much contained. So I think the People's Bank of China just continues to be watchful."

Debt-fueled investment in infrastructure and real estate has underpinned China's growth for years. But Beijing has launched a crackdown over fears of a potential financial crisis.

President Xi Jinping called for tougher regulations to contain financial risks during a weekend National Financial Work Conference, which sets the tone for reforms. The government would continue to deleverage the economy through prudent monetary policy and by reducing leverage in state-owned enterprises, Xi said.

Moody's downgrades China

uhe/tr (Reuters, dpa, AFP)