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 .