China’s economy stabilized as lending and consumer spending perked up late in the June quarter, suggesting the world’s second-largest economy is responding to stepped up monetary and fiscal policy support.
Gross domestic product rose 6.7 percent in the second quarter from a year earlier, compared with 6.6 percent seen by economists Bloomberg surveyed and in line with the government’s growth target of at least 6.5 percent for the full year. Industrial output and retail data for June beat estimates, investment slowed, and a separate report from the central bank showed the broadest measure of new lending beat all 29 analyst forecasts.
A credit surge and housing recovery this year has been a prop to growth even as it also raises questions about the sustainability of the expansion. Policy makers have kept benchmark interest rates at a record low since October as they balance their growth objective with efforts to curb debt risks and reduce excess capacity.
"Consumer spending has proven more resilient," said Frederic Neumann, co-head of Asian economic research at HSBC Holdings Plc in Hong Kong. "China is also weathering the external drag better than feared, with generous stimulus oiling the wheels of the domestic economy."
June readings, including Bloomberg’s monthly GDP tracker which showed a 7.13 percent pace, show the economy gained momentum at the end of the second half.
- Industrial production climbed 6.2 percent in June from a year earlier, compared to 6 percent in May and economists’ estimates for 5.9 percent.
- Retail sales rose 10.6 percent, compared to the median estimate of 9.9 percent.
- Fixed-asset investment slowed to 9 percent in the January-June period versus economists’ expectation for 9.4 percent.
- Aggregate financing was 1.63 trillion yuan ($244 billion) in June, compared with an estimate for 1.1 trillion yuan in a Bloomberg survey.
China’s Communist Party leaders plan to double the size of the economy by 2020 from 2010, and maintain a minimum average growth level of 6.5 percent through 2020. To achieve those targets, they’re seeking to stoke new growth drivers based on innovation and services, as they root out overcapacity in traditional sectors like coal and steel.
But with private investment growth stalling, the state is having to fall back on its old playbook of revving up investment. Meantime, the pace of property development investment eased after policy makers sought to rein in price growth in the nation’s biggest cities, while recent floods pose headwinds.
"The drop in fixed asset investment, especially in property market, as well as the flood impact on economy, will challenge growth in the third quarter," said Zhao Yang, chief China economist at Nomura Holdings Inc. in Hong Kong.
China recently said it has revamped the way it calculates GDP, to better reflect how much spending on research and development contributes to output. The new method will help the government to reach its target and reduce the urgent need for stimulus, according to economists at Goldman Sachs Group Inc. and China International Capital Corp.
While policy makers have allowed the yuan to slide to levels near the weakest in almost six years, the stock market has been generally steady this year after plunging in 2015.
The People’s Bank of China has held its lending rate at a record low 4.35 percent since October. The central bank has also cut its reserve-requirement ratio for major banks, with the latest reduction in February to 17 percent.
"China hasn’t collapsed," Bill Adams, a senior international economist at PNC Financial Services Group in Pittsburgh, wrote in a recent note. "While its economy continues to face daunting challenges in the transition away from export- and investment-led growth, the doomsday predictions for the Chinese economy look like stopped clocks."