China’s GDP growth expanded by more than expected in the second quarter, rising by 7% year-on-year, in-line with the government’s own target and above consensus estimates that it would slow to 6.8%. With the recent troubles in China’s property market and slowing exports, some analysts raised doubts on the reliability of the official figures. However, an official from China’s National Bureau of Statistics defended the improved figures saying they were “hard won”.
The better-than-expected growth was underlined by improved industrial production figures. Industrial production rose by 6.8% year-on-year in June, which was above forecast of 6.0% and higher than May’s figure of 6.1%. Fixed-asset investment also impressed as it rose by 11.4% annually, which was unchanged from the previous month but above estimates of 11.2%.
There was evidence that consumer spending was holding up as retail sales rose by 10.6% annually in June from 10.1% the previous month. This was above forecast of a 10.2% rise. Domestic consumption now accounts for 60% of China’s GDP and the government has been trying to balance the economy by reducing reliance on exports. But most analysts think that the main boost to growth came from increased brokerage activity from the booming share prices and subsequent crash.
Higher income from brokerage fees would have contributed to overall service sector growth in the second quarter, raising the prospect that third-quarter growth could be impacted negatively as the surge in stock market activity wears off. Other sectors of the economy fared less well with property investment continuing to slow, agriculture growing modestly and steel output shrinking.
Trade data out at the start of the week provides further signs that the slowdown in the Chinese economy may be levelling off. Exports in June rose for the first time since February and early indications are that the worst is over in the shares slump. Having risen by over 13% since hitting a trough on July 8, it’s not certain whether today’s losses of over 3% in the main share indices are due to profit-taking or underlying worries over the sustainability of China’s equity prices.
Further stock market turbulence could weigh on growth for the rest of the year. The People’s Bank of China has already cut interest rates four times this year as well as reduce the reserve requirement ratio to boost liquidity, the effects of which are still feeding through to the economy, but further measures may be needed in the coming months.