Asia Economy

'Hard won' China Q2 growth prompts new data questions

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China's economic pulse appears to be steadying, with quarterly growth data released Wednesday beating forecasts, but that renewed long-standing concerns over data accuracy.

For the second quarter, China reported gross domestic product (GDP) grew 7.0 percent on-year, beating a Reuters poll forecast for 6.9 percent. Industrial output for June rose 6.8 percent on-year, beating a Reuters poll forecast for 6.0 percent, while last month's retail sales climbed 10.6 percent, ahead of the Reuters poll forecast for 10.2 percent.

A spokesperson for China's National Bureau of Statistics said GDP figures weren't inflated and the improvement was "hard won," according to a Reuters report. Analysts often doubt the accuracy of official data on the world's second-largest economy.

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"The stronger-than-expected figure will inevitably spark renewed questions over the veracity of the official data," Julian Evans-Pritchard, a China economist at Capital Economics, said in a note Wednesday. But he added, "While actual growth is almost certainly a percentage point or two slower than the official figures show, there are good reasons to think that the latest figures are mirroring a genuine stabilization of conditions on the ground."

That's a sentiment mirrored by Louis Kuijs, a China economist at RBS.

"We're always struggling" with China's data releases due to the country's quirks, including only publishing some components annually, said Kuijs, noting that some figures suggest growth should have slowed in the second quarter.

But he added, "a welcome development is we can see from looking at the monthly data, the tentative pickup in growth that we had noticed before is confirmed by the June data" on industrial production. Combined with better-than-expected import growth data released this week, "there is now evidence that (the government's) policy response is starting to feed through into the real economy."

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Concerns about slowing economic growth on the mainland have spurred policy makers to action. Late last month the People's Bank of China (PBOC) cut interest rates and the reserve requirement ratio (RRR) for some lenders in a bigger-than-expected easing package. That marked the PBOC's fourth round of major action since November amid concerns that the government's annual GDP target of "around 7 percent" could be at risk. China last cut both interest rates and the RRR at the same time in December 2008, at the peak of the global financial crisis.

The statistics bureau also attributed the quarter's growth stabilization to recent policy steps.

"The vitality of the economic development was strengthened," it said in its English-language press release. "However, we must be aware that the domestic and external economic conditions are still complicated, the global economic recovery is slow and tortuous and the foundation for the stabilization of China's economy needs to be further consolidated."

After the release of the data, the extended declines, trading down as much as 3.2 percent intraday, although some analysts said the move was unrelated to the figures.

But China's recent stock market volatility, with shares surging sharply before crashing into bear market territory, may dent growth ahead. The Shanghai Composite is off more than 24 percent from its 52-week high.

"The surge in brokerage activity associated with the equity bubble feeds directly into the service sector component of GDP," noted Capital Economics' Evans-Pritchard. He expects that was unsustainable and short-lived.

But Kuijs doesn't expect a huge dent.

"The booming financial sector in the first half was a significant, but not dominant contributor to the strong service sector performance," he said. But if the current market turmoil takes a sharp bite out of the financial sector's turnover, it could show up in third-quarter GDP data, potentially shaving 0.2-0.3 percentage point off growth, he said.

"It is a question of whether other forces, like the continuation of the pickup in industry can compensate for that," Kuijs added.

--Ansuya Harjani contributed to this article.

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1