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China GDP growth accelerates to 7.9% By Richard McGregor in Beijing Financial Times July 16 2009
Beijing is in reach of its 2009 growth target of 8 per cent after its economy accelerated significantly in the second quarter on the back of increased government spending and a surge in bank lending.
The economy expanded by 7.9 per cent in the three months to the end of June over the same period last year, the National Bureau of Statistics announced on Thursday, with investment, industrial production and retail sales all contributing to higher output.
Li Xiaochao, a spokesman for the NBS, said the economy “had stabilised with increasing positive changes” after dipping sharply at the end of last year and expanding by only 6.1 per cent in the first quarter, leading many economists to believe that the government would not be able to meet its year-long growth target of 8 per cent.
The high-speed growth, above analysts’ consensus forecasts, was driven by the government’s aggressively loose fiscal and monetary policies, funded largely by record lending by state banks.
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.
“The Rmb1,530bn in new loans in June brought total new lending in the first half of the year to Rmb7,400bn, or almost one quarter of our estimated 2009 GDP,” said Wang Tao, of UBS, in Beijing.
“We now expect total new lending in 2009 to reach Rmb9,000bn, a speed of re-leveraging unprecedented in China’s history.”
The bank lending and fiscal spending has driven fixed asset investment, the prime engine of growth, up by 33.5 per cent in the first half of the year compared to the same period in 2008.
Government incentives for consumption, such as rebates on buying cars and white goods, helped support retail spending, which expanded by a healthy 15 per cent in the first six months of the year.
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.
The absence of inflation will in the meantime encourage Beijing to maintain loose monetary policies.
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.
However, the faster-than-expected second quarter figures may strengthen the case already being argued internally by the central bank and the bank regulator for the stimulus to be reined in.
“We believe that the rapid recovery in growth, plus concerns about inflation and asset quality, will lead to a change in macro policy, and we look for policy consolidation in the months ahead,” said Ms Wang, of UBS.