China GDP growth accelerates to 7.9% - State stimulus boosts economy

China GDP growth accelerates to 7.9% - State stimulus boosts economy
By Richard McGregor in Beijing
Copyright The Financial Times Limited 2009
Published: July 16 2009 03:59 | Last updated: July 16 2009 05:28
http://www.ft.com/cms/s/0/55028018-71b4-11de-a821-00144feabdc0.html


China’s economy accelerated significantly in the second quarter, with gross domestic product expanding by 7.9 per cent, ahead of analysts’ consensus estimates.

Li Xiaochao, a spokesman for the National Bureau of Statistics, said the economy “had stabilised with increasing positive changes”, as the new data were announced on Thursday.

The surge in growth was driven by the government’s aggressively loose fiscal and monetary policies, introduced late last year, with most of the funding coming from record lending by state banks.

Investors reacted positively to the news, sending the Shanghai Composite up 0.7 per cent to 3,211.29, while the Hang Seng index in Hong Kong added 2.1 per cent to 18,643.34 by midday.

The economy grew by 6.1 per cent in the first quarter, leading many China economists to believe that the government would not be able to meet its year-long growth target of 8 per cent.

But the government’s pump-priming has turned the economy around, prompting rapid revisions by many investment bank economists, and the World Bank, to upgrade China’s outlook.

Mr Li said that fixed asset investment rose strongly, up 33.5 per cent in the first half of the year compared to the same period in 2008.

Inflation, the Chinese government’s biggest policy headache until the middle of last year, remained under control in the first half of the year, with the consumer price index falling by 1.1 per cent from a year ago and 1.7 per cent in June alone.

Many local economists believe that the central government will not begin to rein in the stimulus programme until inflation begins to pick up, or at least turns positive.

The absence of inflation, in the meantime, will encourage central government leaders to maintain loose monetary policies.

Retail sales figures also remained strong in the first half of the year, rising by 15 per cent from the same period last year.

At his press conference, Mr Li appeared to suggest that the government was not yet ready to apply the brakes to the economy.

Although momentum was clearly picking up, he said the recovery was “unbalanced” and there were still “uncertain and volatile factors” at work in the economy.