China's economy grows 6.9 per cent in second quarter, beating market expectations

Ivan Schwartz
July 17, 2017

Analysts have expected the Chinese economy to expand 6.8 percent in the second quarter.

Gross domestic product grew 6.9% year-on-year, the same pace of expansion as seen in the first quarter, the National Bureau of Statistics said Monday.

"We do have doubts about how sustainable the recovery is", said Julian Evans-Pritchard, a China economist for Capital Economics, adding that the economy has "been very reliant" on government stimulus, rapid credit growth and a relatively loose monetary policy.

On the latter, the NBS said that overcapacity was "addressed in a well-ordered way" noting that capacity utilisation rates across the nation's industrial sector rose from a year earlier while real estate inventory "continued to be reduced".

Shilen Shah, bond strategist at Investec Wealth & Investment, said: "The better than consensus print for Chinese Q2 GDP suggests that the economy is maintaining momentum with both industrial output and fixed asset investment somewhat stronger than estimates". That was in line with the previous quarter and exceeded some forecasts.

There is fear that growing debt in the manufacturing sector could combine with overcapacity to drag the economy down, and there are also worries that large cities are now in the middle of a property bubble.

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Retail sales meanwhile rose 11.0 percent in June from a year earlier, the fastest pace since December 2015 and beating analysts' expectations for a 10.6 percent rise.

In the first half of this year, steel output totaled 419.75 million tonnes, up 4.6 percent from the same period in 2016, data from the National Statistics Bureau showed.

It is unclear whether the new method has been used for Monday's second quarter GDP read.

The stronger growth also means officials will have more room to address the growing debt problem, as China continues to place controlling risk and deleveraging at the forefront of financial policy this year.

This was equivalent to the rate it grew in the first three months of the year, and slightly above analysts' forecast for a 6.8 percent increase.

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