Asia Economy

The bad news to China's good growth data is...

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China posted better-than-expected second-quarter gross domestic product (GDP) figures, but economists say there's little evidence of progress in rebalancing its economic growth model towards domestic consumption.

GDP growth picked up to 7.5 percent on year in the June-April quarter, from 7.4 percent in the previous three months, as Beijing's targeted stimulus measures began to pay off.

"The recovery is clear, but this recovery can't be seen at the consumer level, it's driven by infrastructure spending that the government has planned. That's troubling," Dariusz Kowalczyk, senior economist/strategist, Asia ex-Japan at Credit Agricole told CNBC on Wednesday.

Read MoreChina economy grows 7.5% in the second quarter

In April, the government rolled out a mini stimulus package designed to boost spending on infrastructure including railways and social housing. As a result, fixed asset investment climbed 17.3 percent in the first six months of 2014 compared with a year earlier, while retail sales rose just 12.4 percent in June from a year ago, in line with analysts' predictions.

"The gap between investment and consumption remains very wide. Retail sales need to pick up to a pace that equals fixed asset investment, otherwise growth will continue to be imbalanced," he said.

Fixed on a target

Rebalancing the world's second-largest economy away from investment-led towards consumption-driven growth is pivotal for sustaining long-term growth.

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Li-Gang Liu, chief economist for Greater China at ANZ says the government's renewed focus on achieving its 7.5 percent growth target means reform measures are likely to be delayed.

"It seems that the 7.5 percent target has become legally binding. If the government is overly concerned about growth they may put the reform agenda on the back burner," Liu said.

China Q2 GDP will stabilize stocks: Macquarie
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China Q2 GDP will stabilize stocks: Macquarie

Last month, Chinese Premier Li Keqiang said he's confident China will achieve its 7.5 percent growth target this year, adding the government is ready to adjust policy to make sure it does. This is a departure from its seemingly more flexible approach earlier in the year.

Upbeat momentum

Nevertheless as Beijing's recent monetary easing and fiscal stimulus continue to filter through the economy, economists are upbeat the current growth momentum will be sustained for the remainder of the year.

"The GDP result highlights the quick success of the stimulus measures - we're on track for the 7.5 percent growth target and crucially job creation is going very well," said.

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The economy generated 7.4 million new jobs in the first-half, on course for achieving the government's goal to create 10 million new jobs per year. As such, Kowalczyk says there's no need for additional stimulus measures.

Whether the economy needs more stimulus, however, remains a point of debate among economists.

Liu, on the other hand, expects the People's Bank of China to extend its recent targeted reserve requirement ratio (RRR) cuts to the whole banking system.

"The key for China now is to lower the high funding costs facing Chinese enterprises. The selective RRR cuts are not sufficient enough. We expect further monetary easing for the remainder of the banking system in the third quarter," he said.