Asia Economy

China economy grows 7.5% in the second quarter

Is China on track to meet 7.5% growth target?
Is China on track to meet 7.5% growth target?

China's growth picked up momentum in the second quarter, buoyed by a raft of stimulus measures unleashed by the government in recent months to support the world's second largest economy.

The country's gross domestic product (GDP) grew 7.5 percent in the second quarter from the year-ago period, beating a broad consensus estimate of 7.4 percent and coming after the 7.4 percent expansion in the first quarter.

Quarter on quarter growth clocked in at 2 percent, versus the 1.8 percent forecast and following the 1.4 percent growth in the previous quarter.

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Beijing also released a raft of other data which beat forecasts: June industrial output rose 9.2 percent on-year, better than the 9 percent consensus, while fixed asset investment grew 17.3 percent in the January-June period, a tad better than the forecast for 17.2 percent growth.

Retail sales for June came in line, up 12.4 percent on an annual basis.

Manfred Gottschalk | Bloomberg | Getty Images

"I think the government is happier with second quarter, we can see that from Premier Li Keqiang's rhetoric, but he's also still saying there are issues out there and the recovery is still fragile… things have stabilized but it's not time to party yet," said Stephen Green, senior economist at Standard Chartered.

The latest batch of data is proof that China's drip-feed of stimulus measures in recent months, to reboot the slowing economy, is working.

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On Tuesday, data from the central bank showed Chinese lenders gave out 1.08 trillion yuan($173.90 billion) worth of new loans in June, beating expectations of 915 billion yuan – a sign Beijing is stepping up efforts to stimulate the economy.

"[This] a clear sign the Chinese are ramping up activity to meet their end of year forecast," said Evan Lucas, market strategist with IG.

With China's growth so far this year averaging below the government's official target of 7.5 percent growth for the full year, second half expansion would have to improve, and analysts say that would mean more aggressive stimulus is coming.

China, it's not time to party yet: StanChart
China, it's not time to party yet: StanChart

"The government has been announcing a series of measures since March, which has helped to stabilize growth in Q2 and some sequential momentum that we're seeing currently but going forward, if the government wants to achieve the 7.5 percent growth target, that would imply a further significant improvement in the sequential growth in the second half of this year," Jian Chang, chief China economist at Barclays, told CNBC.

"I do not think the current mini stimulus is enough to sustain growth for the second half of this year, given the ongoing correction in the property market and the challenge to cut over capacity in many other sectors," he added.

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Analysts point to the reaction in the Australia dollar as a telling sign that things aren't in great shape in China. While stocks rose following the GDP release – the rose to a new one-month peak while Hong Kong shares rose to one-and-a-half-week highs – the Aussie initially ticked higher, but fell to a more than one-week low of $0.9334 soon after.

"Despite all the data, you're actually seeing a tightening of financial conditions in China and if you look at the performance of the Australian dollar, it acts as a proxy for conditions in China over the past year. The fact that the Chinese currency has remained soft over recent months despite positive economic news and fiscal stimulus is a sign that underlying fundamental conditions are not right. So that's being reflected in the Australian dollar," said Greg Gibbs, senior currency strategist at RBS.