BEIJING China’s leaders are expecting to see a dividend from three months of stimulus spending in second-quarter growth data on Wednesday, but the economy may need even more state support to meet this year’s growth target of 7.5 percent.
An unexpectedly hefty increase in bank loans in June is being taken as a signal of Beijing’s alarm at the slowdown, and how far it is prepared to go to ensure growth gets back on track.
Thanks to a raft of government stimulus measures, China's economy likely grew 7.4 percent in April-June from the same period a year earlier, unchanged from the pace in the first quarter, a Reuters poll showed. The first-quarter reading was the weakest in 18 months.
But there could be a modest upside surprise, given that Premier Li Keqiang said last week that growth quickened in the second quarter from the previous three months.
Still, many economists believe more policy support may be needed in coming months to sustain any recovery, particularly if the cooling property market begins to deteriorate more sharply.
"We expect Beijing to continue rolling out small-scale measures to deliver the annual growth target of around 7.5 percent," Ting Lu and Xiaojia Zhi at Bank of America-Merrill Lynch in Hong Kong said in a note.
"That said, we believe Beijing will resist calls for universal and massive easing such as RRR for all banks," referring to the amount of reserves which banks are required to hold.
The government has been rolling out a series of targeted policy measures since April, including steps to reduce the amount of cash that some banks have to hold as reserves, instructing regional governments to quicken their spending, and hastening the construction of railways and public housing.
Premier Li Keqiang vowed recently that the economy would grow by at least 7.5 percent in 2014, surprising many market watchers after a weak start to the year and reinforcing expectations of more government assistance to come.
ACTIVITY IN JUNE PICKS UP
Along with second-quarter gross domestic product, Beijing will also report the last of its activity indicators for June, which could give investors more clues on how much economic momentum will be carried into the second half of the year.
Manufacturing output is forecast to have grown 9 percent in June, up a shade from May's 8.8 percent. Retail sales, a key gauge of consumption and a counterweight to sluggish exports, may have grown 12.4 percent in June, easing slightly from 12.5 percent in May.
Growth in fixed-asset investment, a key growth driver, is seen hovering at 17.2 percent in the first six months of 2014 - unchanged from the pace seen in the first five months.
But investors will be bracing for details on real estate investment. New construction fell by nearly a fifth in the first five months of the year, while average home prices in May fell for the first time in two years.
Data on Tuesday showed Chinese banks lent a much stronger-than expected 1.08 trillion yuan ($173.9 billion) worth of new yuan loans in June while broad M2 money supply jumped 14.7 percent from a year earlier, as the central bank loosens monetary conditions to support the economy.
Other data last week showed inflation cooled more than expected in June, pointing to lingering sluggishness in the economy, while exports did not improve as much as expected, putting greater pressure on Beijing to spur domestic demand.
Some analysts expect modest upside surprises in the investment and industrial production growth for June, with some expecting second-quarter GDP growth to be around 7.5 percent.
Top leaders have ruled out the possibility of any massive stimulus as China struggles to deal with piles of local government debt, the hangover from a 4 trillion yuan ($644 billion) spending package implemented in 2008-09 to help cushion the country from the global financial crisis.
($1 = 6.2098 yuan)
(Editing by Kim Coghill)