China cheers, but not too loudly, after bubbly Q2 GDP

By Simon Rabinovitch and Zhou Xin

BEIJING (Reuters) - China looks set to hit its full-year growth target of 8 percent after a surprisingly strong second quarter notable for a surge in investment driven by powerful fiscal and monetary stimulus.

Annual gross domestic product growth accelerated in the second quarter to 7.9 percent from 6.1 percent in the first quarter, making China the best-performing major economy and reinforcing hopes that the world economy is pulling out of its deepest recession in 80 years.

Economists had forecast 7.5 percent growth, and several promptly responded to Thursday's figures by raising their projections for this year and next.

"We see clear upside risks to our current GDP growth forecast of 8.3 percent for 2009," said Yu Song and Helen Qiao at Goldman Sachs. They said the second quarter's 7.9 percent growth translated into a 16.5 percent pace compared with the first quarter when expressed as a seasonally adjusted annualized rate.

A string of accompanying data for June from the National Bureau of Statistics depicted an economy successfully making up for a slump in exports through domestic demand, especially capital spending, generated by a 4 trillion yuan ($585 billion) pump-priming package and record bank lending.

"It's very encouraging: the 8 percent growth target is in sight," said Daniel Soh, an economist at Forecast in Singapore.

"It's by now clear that the fiscal stimulus package has offset the contraction in export activity,"

Tokyo shares hit a one-week high and shares elsewhere in Asia powered to their highest level in a month as the Chinese data buoyed hopes for a global recovery.

STRONG INVESTMENT

Factory output growth quickened to 10.7 percent in the year to June, beating forecasts, from May's 8.9 percent reading, while investment in fixed assets in urban areas grew 33.6 percent in the first half, up from 32.9 percent in the first five months.

"Investment growth will accelerate in the third quarter and become even faster in the last quarter of this year," said Hao Daming, a senior economist at Galaxy Securities in Beijing.

"The recovery is confirmed. The bottom was the fourth quarter last year," he said.

Li Xiaochao, a spokesman for the statistics office, said the data had laid a foundation for hitting the 2009 growth target, the minimum deemed necessary to hold down unemployment.

"Our economy is continuing to turn for the better and there are more and more positive factors," Li told a news conference.

"We see more people shopping and prices beginning to rise. The economy is recovering and the recovery is intensifying. All the government's policies have worked together to help us overcome the financial crisis," he said.