BEIJING (Reuters) - China’s annual GDP growth accelerated to 7.9 percent in the second quarter from 6.1 percent in the first quarter, as a surge in bank lending and government spending made it the best-performing major economy in the world.
The GDP figure, announced by the government on Thursday, was accompanied a by a batch of data for June that showed the Chinese recovery was spreading more broadly, with private investment and consumption posting healthy rises.
WOON KHIEN CHIA, LOCAL MARKETS STRATEGIST AT ROYAL BANK OF SCOTLAND IN SINGAPORE:
“It’s quite clearly the distortions have worsened. CPI and PPI are all still very weak but money growth is ballooning, so liquidity allocation is distorted.
“It looks like they want to go back to credit allocation guidance while they clamp down on the excess liquidity that is going to the wrong places with no restraint.
“There will be no tightening through interest rate hikes for now, but mopping up liquidity already started, that’s not a flash in the pan move. I don’t think they are trying to employ some scare tactic.”
DONG XIAN’AN, CHIEF MACRO ECONOMIST AT INDUSTRIAL SECURITIES IN SHANGHAI:
“Q2 annual GDP growth at 7.9 percent means an annualized quarter-on-quarter growth of 17.5 percent.
“The Chinese economy has posted a V-shape recovery driven mainly by domestic demand. That trend will not reverse in the short to medium term.
“China will have no problem to have high growth and low inflation this year. In the medium and long term, the risk of economic overheating along with high inflation is still under control.
“It’s more likely that China will have high growth and mild inflation next year.”
ANDREW ORCHARD, REGIONAL STRATEGIST AT ABN AMRO IN HONG KONG:
“You can see that from their policy, the loan growth in June was off the charts, really good. The implication is they are keeping the monetary policy very loose for that reason ... to meet that growth target.
“That is the question for global markets ... when will we begin to see tightening. I wouldn’t be surprised to see some implicit tightening (later in this quarter or in the fourth quarter).
“It would be difficult to raise interest rates, but there could be some pressure on banks to cut back on lending which we would never know about.”
DANIEL SOH, ECONOMIST AT FORECAST IN SINGAPORE:
“It’s very encouraging, the 8 percent growth target in sight.
“Many positive developments on the micro issue have been observed of late. Investment from domestic private enterprise showed signs of picking up.
“The composition of medium-and-long-term loans to total loans rose. That, plus today’s data, means that China’s economic recovery is set to extend going forward, even when fiscal stimulus effects wane in the fourth quarter of 2009.
“It’s by now clear that the fiscal stimulus package has offset the contraction in export activity.
“We predict growth of 9 percent year-on-year and above for the third quarter, followed by high 8 percent growth in the fourth quarter.
“We have revised our Chinese 2009 growth forecast to 8.1 percent.”
BEN SIMPFENDORFER, CHINA ECONOMIST AT RBS IN HONG KONG:
“I’ve just revised up my full-year (GDP) forecast to 8 percent from 7 percent on this data. I was expecting a much lower figure.
“The important message here is that while the pace of growth is accelerating, the quality is deteriorating. Growth is too reliant on public investment and residential investment. It’s not sustainable.
“Retail sales figures are probably the poorest of the monthly data. It’s nice to see they are stronger but anecdotal information from department stores suggests they are stable to stronger. Obviously I’d like to see more rebalancing (toward private consumption) but that’s years away.”
HAO DAMING, SENIOR ECONOMIST AT GALAXY SECURITIES IN BEIJING:
“Industrial output growth accelerated, showing the destocking period is near the end.
“GDP growth acceleration is partly driven by the faster increase in industrial production.
“The investment growth will accelerate in the third quarter and become even faster in the last quarter of this year.
“The recovery is confirmed. The bottom was the fourth quarter last year.
“The risk for next year is that investment growth will not be as fast as this year. Real estate investment in 2010 will also slow down, due to high prices.
“The central bank will tighten monetary policies in the second half, via credit quota and open market operations.
“New loans will be about 400 billion yuan each month in the second half.”
XING ZIQIANG, ANALYST AT CICC SECURITIES IN BEIJING:
“We can see that the economy is recovering very rapidly. The 7.9 percent annual growth for the second quarter can be translated into an annualized quarter-on-quarter rate of 16 percent.
“The government’s stimulus policy play a dominant role in bringing up the economy. Our calculations show that government policies, including the 4 trillion yuan stimulus package, contributed about 6 percentage points for the 7.1 percent for the first half.
“I don’t think the strong data will give the authorities enough confidence to put on the brakes as we can see that consumer and production deflation are getting worse than the previous month.
“The recovery is still not on a solid footing. So I think current loose policies will be sustained for at least another quarter.
“We noticed that the central bank recently issued a large amount of bills at comparatively low rates. Many people interpret this as a sign of tightening. I think we should not over-read it.
“I think the top policy makers still think relaxed policies are still needed to ensure a solid recovery. I expect that bank lending will hit about 10 trillion yuan for the whole year.
“No turnaround in policy will come until maybe the last quarter when GDP accelerate to more than 9 percent for the fourth quarter. Interest rates or bank reserve ratios will not be increased until next year.”
-- See the National Bureau of Statistics website at www.stats.gov.cn. The report might not be immediately available.
-- China’s benchmark Shanghai Composite Index was up 0.1 percent at 0243 GMT (10:43 p.m. EDT) compared with a rise of 0.3 percent before the data.
Stocks in Hong Kong gained 1.6 percent, helped in part by the Chinese economic growth numbers.
-- Since 1978, China has averaged GDP growth of close to 10 percent a year, but the government has had to ramp up spending and shift to extremely loose monetary policy to put the country on track for the official target of 8 percent growth in 2009.
-- Just a few months ago, many economists thought China’s growth would be in the 6-7 percent range this year. However, with investment surging and consumption growing steadily, the consensus growth forecast has been increased to 8 percent.
-- The one piece of the puzzle still missing is exports. The collapse in U.S. and European demand means that China’s trade surplus will shrink this year and probably contribute nothing to, or even act as a drag on, GDP growth.
-- The central bank cut interest rates five times in the final months of 2008 but has marked time this year. Economists expect it to stand pat as it waits for growth to gain traction, though it has begun to tweak monetary policy at the margins, issuing more bills and pushing yields higher to mop up some of the excess liquidity from the lending spree.
Reporting by Langi Chiang, Eadie Chen and Kirby Chien in Beijing, Kevin Yao in Singapore and Susan Fenton in Hong Kong; Editing by Lucy Hornby
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