• Tue
  • Aug 26, 2014
  • Updated: 6:04am
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China Economy

Chinese economy expands 7.5pc, faster than expected, data shows

Gross domestic product rises 7.5pc in quarter but cooling in property market still a concern

PUBLISHED : Wednesday, 16 July, 2014, 10:16am
UPDATED : Thursday, 17 July, 2014, 1:36pm

The mainland's economy expanded faster than expected in the second quarter, indicating the government's mini-stimulus policies have taken effect, although cooling in the property sector poses risks in the months ahead.

Gross domestic product grew 7.5 per cent in the quarter, rebounding from the 18-month low of 7.4 per cent in the first quarter, the National Bureau of Statistics said yesterday. The pace exceeded market expectations of 7.4 per cent growth after Premier Li Keqiang said the economy was doing better in the second quarter than the previous three months.

Hong Kong and mainland stock markets were mixed yesterday after the data was released. The Shanghai Composite Index lost 0.2 per cent to finish at 2,067.28. Hong Kong added 0.27 per cent, or 63.32 points, to close at 23,523.28. The Shenzhen Composite Index, which tracks stocks on the mainland's second exchange, dropped 1.03 per cent, or 11.53 points, to 1,105.22.

The bureau's spokesman Sheng Laiyun said the economy was stable in almost all areas, including growth, jobs, inflation and income. But he warned that economic restructuring would cause more pain, saying: "We must not be blindly optimistic."

Sheng said corrections in the property market were set to "put pressures on economic operations in the short term".

Analysts said Beijing would need to roll out more easing steps to ensure the annual growth target of about 7.5 per cent was met.

Some urged the government to lower the reserve requirement ratio - the cash banks must keep in reserve - for more banks.

The acceleration came after Beijing rolled out pro-growth policies in recent months. These included lowering the reserve requirement ratio for some banks and revising the the way of calculating the ratio of loans to deposits with the aim of release more liquidity to the market. Infrastructure investment was brought forward and taxes for small businesses were trimmed.

"The result was slightly better than my expectation. The acceleration was a result of relatively significant policy easing in May and June after growth eased further in April," said Shen Jianguang, Mizuho Securities chief economist for Greater China.

"If the data were reliable," he said, "such a performance could give the government some reason to cheer up and keep policy stable for a while." But he added: "We'll see whether housing starts will slip further, or stabilise. The effectiveness of the recent wave of local housing policy relaxation remains uncertain."

Fixed-asset investment in the first half rose 17.3 per cent from a year earlier, quicker than the 17.2 per cent growth in the January-May period. But property investment grew 14.1 per cent in the first half from a year earlier, down from 16.8 per cent in the January-March period.

Industrial production grew 9.2 per cent in June year on year, faster than the 8.8 per cent in May. Retail sales rose 12.4 per cent, a tad slower than the 12.5 per cent growth in May.

Economists cautioned that Beijing will face challenges in defending its annual growth target.

"As China's structural property downshift continues to unfold, we expect the ... negative drag on the economy to increase" in the fourth quarter this year and into next year, said UBS Securities' economist Wang Tao .

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likingming
Statistics are lies. Look at the unemployment rates in the US.
sipsip1238
China must have the best maths geniuses in the world.
First, they predict 7.5 and they get 7.5!
Second, it normally takes a corporate about 3 weeks to a month to finalise Q2 figures, China does the ENTIRE country in a matter of days.
Third, you do wonder if they are THAT good at predictions, you'd think they can just make a crapload of money from trading the markets, and yet PMs from China are particularly underperforming other portfolios.
shuike
It took China less than 40 years to leap from the bottom to no. 2 economy in the world. Less than 6 years to go from no high speed rails to no. 1 in the world. Build a 27 story building in less than a month. Build the fastest computer in the world. Build the world's highest plateau railway in record time & so on. Yea I wouldn't be surprised they can do their Q2 figures in no time too.
singleline
'Beijing will face challenges in defending its annual growth target', not only because 'China's structural property downshift continues to unfold', but also because at least some of the country's domestic savings have turned from good to bad.
Now those 'bad' savings are used to finance those 'bad' investment projects put forward by the SOEs and the local governments, but they invest just for the sake of investment, to sustain the relatively high central-government-stipulated GDP growth rate, even though they all know that the rates of investment returns no longer justify even their relatively low average cost of capital, resulting in more and more potential bad debts and worsening bank balance sheets.
The crowding out effect also greatly reduces the vigor of the country's much more efficient private sector.
A recent Chinese article says that this year's GDP price floor of 7.5% must be maintained.
Whenever this kind of no-matter-what and at-all-costs argument is put forward, my feeling is that there must be something wrong with it later.
Now the correct goal should be to increase the national income of the people, not to maintain a rigid GDP growth rate which seems to have hindered the country's long-term efforts of real economic reform.
With more income, the people will spend more, and the country's most important employment level can also be sustained this way.
Investment means useful investment, and work means useful work, not digging holes for others to fill.
singleline
Only when most of those investment projects are really self-liquidating should the goal of sustaining a certain GDP price floor be maintained,
and this can be achieved by undertaking a genuine hukou/rural-land reform mentioned downstairs.
This way, those 'bad' domestic savings in the country will become 'good' once again, as in the good old days, because they are now once again used to finance the 'good' investments.
A happy byproduct is that, with more domestic investments, the country's excess savings will drop as a result.
The resulting lower trade balance will mean a slower rise in the country's exchange reserves.
Together with gradually smaller FDIs and lower amount of hot-money inflow, this means a slower rise in funds outstanding for foreign exchange, and the central bank can truly resume her monetary policy independence and effectively control the domestic inflation rate.
The Chinese residents' urgent need to protect their real wealth through 'investing' in the property market will also subside, resulting in a healthier property market in the country.
singleline
It's said that China's potential GDP growth rate had fallen to below 8% in 2012, will fall further to below 7% in 2015, and below 6% by 2020.
Well, China's urbanization rate has just passed 50%.
If the suggested hukou/rural-land reform is truly and correctly promoted and enacted, it will prove as growth-stimulating as China's 2001 entry into the World Trade Organization, perhaps much more.
And this time, it's not the country's external demand but her internal aggregate demand that will be greatly propped up to enable the country to have a subsequent at-least-2-decade-long high economic growth.
If successfully done, the country’s average annual GDP growth rate in the coming 2 decades may easily be as high as 10%, or even more.
And this will be a much healthier growth than before --- this time, the country’s excess savings will become much smaller than before, because most of the domestic savings will be used to finance her greatly increased domestic investments resulting from enlarged urbanization.
So the smaller excess savings will no longer finance most of America's trade deficits which in the past had partly caused the global disequilibrium and the last Great Crisis.
One rule of thumb is to always grasp one's own destiny, rather than relying on other people.
singleline
According to the following Chinese article, China's present lower GDP growth rate is due mainly to her lower potential GDP growth rate, a supply-side factor, which in turn has partly been caused by her smaller population dividend.
Which means the recent fall in GDP growth rate is not caused by a fall in aggregate demand, a demand-side factor, say through smaller external demand, as is assumed by many pessimistic China watchers.
Now the farmer workers occupy 35% of the total city employment.
The hukou reform can greatly increase the labour participation rate of the farmer workers, thereby increasing the total supply of labour in the country, raising their overall skills, prolonging the beneficial effects of population dividend in the country, and sustaining a much higher potential GDP growth rate (say 10%) in the coming decades.
(****wallstreetcn.com/node/99728)
If so, most of the 61 million remaining-behind children in the villages (the same as the whole population of Britain) can go to the cities, receive much better formal education there, and contribute to the society years later.
singleline
'Beijing will face challenges in defending its annual growth target', not only because 'China's structural property downshift continues to unfold', but also because at least some of the country's domestic savings have turned from good to bad.
Now those 'bad' savings are used to finance those 'bad' investment projects put forward by the SOEs and the local governments, but they invest just for the sake of investment, to sustain the relatiively high central-government-stipulated GDP growth rate, even though they all know that the rates of investment returns no longer justify even their relatively low average cost of capital, resulting in more and more potential bad debts and worsening bank balance sheets.
The crowding out effect also greatly reduces the vigor of the country's much more efficient private sector.
A recent Chinese article says that this year's GDP price floor of 7.5% must be maintained.
Whenever this kind of no-matter-what and at-all-costs argument is put forward, my feeling is that there must be something wrong with it later.
Now the correct goal should be to increase the national income of the people, not to maintain a rigid GDP growth rate which seems to have hindered the country's long-term efforts of real economic reform.
With more income, the people will spend more, and the country's most important employment level can also be sustained this way.
Investment means useful investment, and work means useful work, not digging holes for others to fill.
Asia Pulse
7.5%, sure if one so choose to believe the official data provided, or as proeminent figures have said recently in the U.S. :
"China is a value trap... or a value add value trap," said Paul Marshall, CEO of Marshall Wace.
"China came out with it's very predictable 7.5%," said Mary Callahan Erdoes, head of JP Morgan Asset Management.
""If you're looking for bubbles to avoid... Chinese internet stocks," said Jane Mendillo, President and Chief Executive Officer, Harvard Management Company.
singleline
The recent article written by Michael Pettis says that ‘we cannot simply put the bad debt behind us once the economy is “reformed” and project growth as if nothing happened.
Earlier losses are still unrecognized and hidden in the country’s various balance sheets.
These losses will either be explicitly recognized or they will be implicitly amortized. The only interesting question, as I see it, is which sector will effectively be assigned the losses.’
He also suggests that ‘Beijing can assign the losses to the state sector, by reforming the hukou system, land reform, interest rate and currency reform, financial sector governance reform, privatization, etc.
Most of the Third Plenum reforms are simply ways of assigning the cost of rebalancing, which includes the recognition of earlier losses, to the state sector.
This is likely however to be politically difficult.
China’s elite generally benefits tremendously from control of state sector assets, and they are likely to resist strongly any attempt to assign to them the losses.’
(****blog.mpettis.com/2014/07/bad-debt-cannot-simply-be-socialized/)

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