China’s econ­omy in healthy ex­pan­sion

The Star Early Edition - - BUSINESS REPORT - Elias Glenn and Kevin Yao

CHINA’S econ­omy ex­panded faster than ex­pected in the sec­ond quar­ter, set­ting the coun­try on course to com­fort­ably meet its 2017 growth tar­get and giv­ing pol­i­cy­mak­ers room to tackle big eco­nomic chal­lenges ahead of key lead­er­ship changes later this year.

The boost to growth was in part driven by firmer ex­ports and pro­duc­tion, in par­tic­u­lar steel, which could heighten trade ten­sions as the US and China be­gin eco­nomic talks this week. US Pres­i­dent Don­ald Trump has made the US trade deficit with China a top agenda item in bi­lat­eral talks and has also flagged the steel trade as a point of con­tention.

China’s gross do­mes­tic prod­uct rose 6.9 per­cent in the sec­ond quar­ter from a year ear­lier, the same rate as the first quar­ter, the Na­tional Bureau of Sta­tis­tics said yes­ter­day. That was higher than an­a­lysts’ ex­pec­ta­tions of a 6.8 per­cent ex­pan­sion.

Eco­nomic data from the sec­ond quar­ter has prompted a num­ber of an­a­lysts to up­grade their gross do­mes­tic prod­uct (GDP) fore­casts for China for 2017, al­though some mod­er­a­tion in growth is ex­pected later this year as pol­i­cy­mak­ers’ ef­forts to rein in prop­erty and debt risks weigh on ac­tiv­ity.

“In gen­eral, we ex­pect GDP growth to re­main ro­bust in the sec­ond half, but slower than the first half, due to the high base,” Citi economists said in a re­search note. “Look­ing ahead, un­cer­tainty re­mains on in­vest­ment and trade.” The bank has raised its 2017 an­nual GDP pro­jec­tion to 6.8 per­cent year-on-year from 6.6 per­cent pre­vi­ously.

The ro­bust num­bers kept world shares near a record high and briefly helped China’s ma­jor stock in­dexes re­coup ear­lier losses.

The sec­ond quar­ter num­bers put the econ­omy on a strong foot­ing to meet China’s growth tar­get of around 6.5 per­cent in 2017, which would give pol­i­cy­mak­ers room to defuse fi­nan­cial risks.

While growth in the high-fly­ing prop­erty sec­tor has cooled this year, a re­bound in ex­ports af­ter sev­eral years of de­cline has helped pre­vent any broader slow­down in China’s econ­omy.

Re­tail spend­ing and fac­tory out­put were also bright spots in the first half. Re­tail sales growth picked up to 10.8 per­cent in the sec­ond quar­ter from 10 per­cent in the first quar­ter, a cal­cu­la­tion based on of­fi­cial data showed. Fac­tory out­put also picked up in the sec­ond quar­ter, though the 6.9 per­cent growth for the first half was only a slight pick up from re­cent quar­ters.

Wel­come news

The im­prov­ing econ­omy is no doubt wel­come news ahead of an au­tumn congress of the rul­ing Com­mu­nist Party of China, at which Pres­i­dent Xi Jin­ping is widely ex­pected to tighten his grip on power, with lead­er­ship keen to en­sure a smooth run-up to the meet­ings.

A con­sol­i­da­tion of power could give Xi more clout to push through what an­a­lysts say are long over­due but painful re­forms, such as re­struc­tur­ing mas­sive state firm debt.

The pres­i­dent said at the Na­tional Fi­nan­cial Work Con­fer­ence on the week­end that he wanted to give China’s cen­tral bank a big­ger role in deal­ing with risks in the fi­nan­cial sys­tem.

With risks ris­ing in some parts of the econ­omy due to lever­aged in­vest­ments and over-bor­row­ing, of­fi­cials need to care­fully bal­ance sup­port for growth with risk con­trols.

How­ever, an­a­lysts say that the cen­tral bank is likely to sit tight for now.

“Based on this data, there is no need for eas­ing and no need re­ally for tight­en­ing ei­ther, be­cause in­fla­tion­ary pres­sures are very much con­tained. So I think the PBoC (Peo­ple’s Bank of China) just con­tin­ues to be watch­ful,” said Craig James, chief econ­o­mist for Com­mon­wealth Se­cu­ri­ties in Syd­ney.

The stronger growth also means of­fi­cials will have more room to ad­dress the grow­ing debt prob­lem, as China con­tin­ues to place con­trol­ling risk and delever­ag­ing at the fore­front of fi­nan­cial pol­icy this year.

PHOTO: EPA

Chi­nese mi­grant work­ers rest out­side a con­struc­tion site dur­ing lunch time in the cen­tral busi­ness district of Bei­jing, China, yes­ter­day. China’s gross do­mes­tic prod­uct rose 6.9 per­cent in the sec­ond quar­ter from a year ear­lier.

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