Chinese Growth Quickens, 8% 2009 Goal in Sight

China's economy gathered momentum in the second quarter thanks to massive fiscal and monetary stimulus, leaving the government's full-year growth target of 8 percent within reach.

Eugene Hoshiko / AP

Annual gross domestic product growth accelerated in the second quarter to 7.9 percent, up from 6.1 percent in the first quarter, making China the best-performing major economy in the world. Economists polled by Reuters had forecast 7.5 percent.

A string of accompanying data for June from the National Bureau of Statistics depicted an economy successfully making up for a slump in exports through domestic demand, both investment and consumption, generated by a 4 trillion yuan ($585 billion) pump-priming package and record bank lending.

"It's very encouraging, the 8 percent growth target is in sight," said Daniel Soh, economist at Forecast in Singapore. "It's by now clear that the fiscal stimulus package has offset the contraction in export activity.  

The statistics office, however, offered a word of caution, saying a lasting recovery was not yet secure.

"The base for recovery is still weak. Growth momentum is unstable. The recovery pattern is unbalanced and thus there are still uncertain and volatile factors in the recovery process." 

Investment in fixed assets in urban areas grew 33.6 percent in the first half, up from 32.9 percent in the first five months, while industrial production growth quickened to 10.7 percent in the year to June from 8.9 percent in the 12 months to May and beating analysts' forecast of 9.4 percent growth.

Retail sales, a rough proxy for consumption, rose 15.0 percent in June from a year earlier after May's 15.2 percent increase.

Economists said the data gave Beijing every chance of achieving 8 percent growth for all of 2009 -- the minimum deemed necessary to hold down unemployment, and the rate forecast by economists polled by Reuters last week.

Europe's biggest bank, HSBC Holdings raised its 2009 growth forecast for China to 8.1 percent from 7.8 percent after the data. It also revised its 2010 forecast to 9.5 percent from 8.5 percent.

A few months ago, in the depths of the global recession, such strong growth appeared fanciful to many China-watchers.

Now, the central bank, nervous at the record pace of bank lending, has begun to tap gently on the monetary brakes, selling more of its paper to soak up cash and nudging up money market rates.

But economists believe the political imperative of putting growth on a solid footing is so great that the central bank will not threaten the recovery by raising interest rates any time soon.

Moreover, the depressed growth rates of late 2008 will offer an increasingly favorable base of comparison as this year wears on. As a result, GDP growth in the second half is likely to be higher than the 7.1 percent first-half rate reported on Thursday.

Unlike developed countries, China does not yet publish quarter-on-quarter GDP data, which give a better sense of current momentum than year-on-year growth rates.

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But most banks produce their own estimates, and they show China building up a strong head of steam in the second quarter.

Goldman Sachs had forecast 7.8 percent second-quarter growth, which it said translated into 16 percent compared with the first quarter when expressed as a seasonally adjusted annualized rate.

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