INSTANT VIEW 3-China's Q2 GDP rises 6.7 pct y/y, in line with f'cast

BEIJING, July 16 (Reuters) - China's economic growth slowed as expected in the second quarter as the government's efforts to tackle debt risks crimp activity and an intensifying trade war with the United States threatens to knock exports. The economy grew 6.7 percent in the second quarter from a year earlier, cooling slightly from the first quarter, the National Bureau of Statistics said on Monday.

KEY POINTS

* Q2 GDP +6.7 pct y/y (f'cast +6.7 pct, prev +6.8 pct)

* Q2 GDP +1.8 pct q/q (f'cast +1.6 pct, prev +1.4 pct)

* June industrial output +6.0 pct y/y (f'cast +6.5 pct)

* June retail sales +9.0 pct y/y (f'cast +9 pct)

* Jan-June fixed asset investment +6.0 pct y/y (f'cast +6 pct)

* June property investment +8.4 pct y/y vs +9.8 pct in May - Reuters calculation

MARKET REACTION: Asian stock markets and China's shares continued to hold

their soft tone after the data. The Australian dollar ,

seen as a liquid proxy for China demand, slipped.

COMMENTARY: VISHNU VARATHAN, HEAD OF ECONOMICS AND STRATEGY, MIZUHO BANK, SINGAPORE: "The fact is that China's industrial activity is continuing to slow harder than anticipated. You've got industrial production slowing much faster, you've got investments slowing as China de-risks its economy. But the so-called 'new economy', driven by services, artificial intelligence, less capital intensive sectors have done better. "GDP has not reflected trade tension yet. There have been a bit of apprehension which are reflected in orders and how inventories are handled, but we haven't seen an all-out slump. We have to also bear in mind that the global trade cycle has also peaked. We are tempted to attribute this to trade tensions, but they haven't solidly come through."

BILL ADAMS, SENIOR ECONOMIST, PNC FINANCIAL SERVICES GROUP, TOLEDO, OHIO: "We expect Chinese real GDP growth to slow somewhat further to 6.5 percent in the second half of 2018, and 6.2 percent in 2019, as tighter fiscal policy and trade frictions restrain growth, partially offset by modest credit and monetary policy support. "But we also expect the yuan to retrace some of June's and July's depreciation against the U.S. dollar in the second half of 2018 and to close the year at 6.58 yuan per dollar versus near 6.70 on July 15, as the dollar gives back some of its recent appreciation against the euro and pound sterling."

LOUIS KUIJS, HEAD OF ASIA ECONOMICS, OXFORD ECONOMICS, HONG KONG: "GDP growth eased...on softer global trade and the tightening of financial policy since early 2018. Growth in industry slowed further in June, underscoring the downward pressures on growth going into H2. Meanwhile, the modest easing of monetary policy in Q2 has so far not turned around the trend towards slowing overall credit growth. "We expect growth in H2 to be challenged by the slow credit growth and softer real estate activity. Also, the intensifying trade conflict with the U.S. will start to weigh on growth. But, China's most recent export data suggests that overall global demand momentum remains solid for now. "Meanwhile, robust consumption it picked up pace in Q2, surprisingly will continue to act as a buffer. Thus, amid some further easing of the macro stance, we expect the slowdown in H2 to be modest."

IRIS PANG, GREATER CHINA ECONOMIST, ING, HONG KONG: "The main driver is still consumption and the drag is manufacturing. I do think that the trade war is having some impact on the manufacturing sector, especially the export-related industries. "We see that although the trade tariffs were not yet in force in June, if you look at the industrial production data, the figures are not really good especially on chemicals, some machinery. "Suppose you are an export business, you will import less and prepare fewer machineries for the coming export season because of the trade war. The June data is already a reflection of how exporters of affected businesses are reacting. "The government needs to do something about this: it needs to boost investment, especially in R&D to support future growth. Investing in infrastructure is the old model. I think they need a new model, investing in R&D. "They need to slow financial deleveraging slightly and to turn their focus more on growth-supportive measures, for example increasing liquidity through RRR cuts. I'm expecting 50 basis points of RRR cuts for SMEs every quarter and if the situation gets worse a lot faster than what we expect. I do think Chinese authorities need to beef up supportive measures, both fiscal and monetary. "We are revising downwards our GDP forecast for the next two quarters to 6.6 and 6.5 percent, respectively from 6.7 percent (each)."

HO WOEI CHEN, ECONOMIST, UNITED OVERSEAS BANK, SINGAPORE: "China GDP growth is pretty much in line with our expectations. The main growth engine in China will still be domestic consumption because they have started to rebalance their economy away from exports and promote more imports for the rest of the year. Investment and manufacturing will probably slow down as a result of the trade tensions. From July onwards, you will see some impact from trade tensions and tariffs, but even if there is some slowdown in the second half of the year, I think China will still be able to manage 6.6-6.7 percent full-year growth, but sentiment will be hit. That is providing that trade tensions don't escalate." RAY ATTRILL, HEAD OF FOREX STRATEGY, NATIONAL AUSTRALIA BANK, SYDNEY "No surprise to see that there was no surprise on the overall GDP numbers. "The slight downside in industrial production was the standout feature for me. It's a classic mixed bag overall. "The data is a confirmation that we've seen a slowing in economic activity since the start of Q2 which is fully consistent with the moderation in credit growth and money supply which is very much by design rather than by accident. "That's one of the reasons that the currency has been allowed to soften against the U.S. dollar rather than it being a any sort of retaliatory response to rising trade tensions."

FRANCES CHEUNG, HEAD OF MACROSTRATEGY, ASIA, WESTPAC BANKING CORP: "While Q2 GDP was in line with expectation, June industrial production was soft at 6.0 percent year-on-year. Retail sales might have taken up part of the slack. The soft June production may serve as a signal on the potential impact from trade tensions."

GRAPHIC: China economy dashboard: http://tmsnrt.rs/2iO9Q6a

BACKGROUND: - China's economy has felt the pinch from a multi-year crackdown on riskier lending that has driven up corporate borrowing costs, promoting the central bank to pump out more cash by cutting reserve requirements for lenders. - Recent data have started to show signs of fatigue as credit expansion slowed and domestic demand ranging from government-funded infrastructure investment to consumer spending looked to be softening. This comes as a deepening trade war with the United States looks set to hit China's export machine. - The fall in the yuan and Chinese stocks in recent weeks come as China-U.S. trade relations deteriorated. - Beijing has accused Washington of bullying and warned it would hit back after the Trump administration raised the stakes in their trade dispute, threatening 10 percent tariffs on $200 billion of Chinese goods. - Faced with a slowdown in domestic demand and potential fallout from a trade war, Chinese authorities have boosted policy support and softened their stance on deleveraging. - Data on Friday showed Chinese banks extended 1.84 trillion yuan ($274.9 billion) in net new yuan loans in June, beating analysts' expectations and hitting the a five-month high as policymakers stepped up support for the economy.

(Reporting by Reuters Hong Kong and Singapore newsrooms and Asia bureaux; Editing by Jacqueline Wong)