China's second-quarter economic growth beats forecasts

China's economy expanded more than expected in the second quarter of the year, Beijing said Friday, fuelling hopes growth may be stabilising, but analysts warned private investment was worryingly low.

The world's second biggest economy grew 6.7 percent year on year in April-June, slightly quicker than forecast in an AFP survey and the same as the year's first quarter.

The result is also in line with the government's 6.5-7.0 target for the full year and will provide some relief as China -- and key driver of the global economy -- suffers its worst rates of growth for 25 years.

"The national economy has achieved moderate but steady and sound development," National Bureau of Statistics spokesman Sheng Laiyun said.
However analysts said much of the expansion was driven by state investment in infrastructure and credit growth, suggesting it may be hard to maintain in the longer-term.

Markets were unmoved by the figures, with Shanghai's composite index ending the day flat.

"China is on track of achieving this year's growth target," said Zhu Haibin, JP Morgan China chief economist. But he added that "investment continues to be on the weak side, especially private investment".

After decades of breakneck growth policymakers claim to be embracing weaker expansion as a trade-off for structural reforms to wean the country off cheap exports and massive government spending in favour of domestic consumption.

But the latest figures show the transformation is proving tough, with mounting debt a key concern for global investors.
Fixed asset investment, a gauge of infrastructure spending, rose nine percent in the first half of the year following a record credit binge in the first quarter aimed at stimulating the economy.

New bank loans jumped to nearly 1.4 trillion yuan in June, the central bank said Friday, up dramatically from around one trillion the previous month, as borrowers took advantage of loosened lending standards put in place by Beijing. 

- Investment concern -

Investment by private businesses grew by less than three percent in the first half of the year, the data showed, with Sheng blaming overcapacity in traditional industries, barriers for private firms to enter some sectors, and limited access to loans. 

Tom Rafferty of the Economist Intelligence Unit said the "greatest concern" is the slide in investment by private firms, in a sign businesses are worried about the wider economy and Beijing is "failing to deliver on promised market reforms”.

"Levels of state investment we have seen are not sustainable if the authorities are at all serious about curbing debt risks."

Factory production and consumer spending grew slightly, and industrial output rose more than six percent year-on-year in June, a slight increase on the previous month, although retail sales rose far more than expected.

The report comes after months of downbeat trade data, with figures Wednesday showing a fall in imports and exports accelerated in June.

“I think (the growth data) has been engineered by significant reacceleration in credit growth," Klaus Baader, Hong Kong-based chief economist for Asia Pacific of Societe Generale, told AFP. He added that the figure was "a little bit disappointing", given the scale of lending expansion.

Official Chinese figures are viewed with widespread scepticism, with the government altering its growth calculation method twice in the past year.

Friday's figures "should be taken with a grain of salt" because of political pressures on officials to meet targets, research firm Capital Economics said in a note.

Economists say the outlook for the second half of the year is clouded by the impact of torrential rains and widespread flooding in southern China, which could weigh on factory productivity. 

Steel production rose 1.7 percent on-year in June, data showed, as China faced criticism from EU and US firms that the country's bloated sector was flooding foreign markets and violating trade agreements at the expense of local jobs. 

Source: AFP