China Economy
Andy Wong  /  AP
China's economy accelerated in the second quarter amid huge stimulus spending, expanding by 7.9 percent from a year earlier as retail sales and industrial output grew strongly.
updated 7/16/2009 4:52:03 PM ET 2009-07-16T20:52:03

China's economic growth accelerated in the second quarter amid a stimulus-fueled investment boom, boosting hopes the world's third-largest economy is emerging from the global downturn.

The economy expanded by 7.9 percent in the April-June period from a year earlier, up from 6.1 percent growth in gross domestic product the previous quarter, the National Bureau of Statistics reported Thursday.

"The data showed the economic recovery is stronger than expected," said economist Zhu Jianfang of Citic Securities Ltd. "There will be no suspense about achieving the government's goal of 8 percent GDP growth this year."

Many analysts expect China to be the first major country to emerge from the worst global slump since the 1930s. That could help pull the rest of the world out of recession as China buys more raw materials, industrial components and consumer goods from struggling economies in the United States, Europe and elsewhere.

The International Monetary Fund earlier this month raised its forecast of China's 2009 growth by one percentage point to 7.5 percent. The World Bank boosted its forecast last month from 6.5 percent to 7.2 percent.

Goldman Sachs said compared with the previous quarter — the way other major economies measure growth — China's second-quarter growth accelerated to 16.5 percent on an annualized basis.

Challenges numerous
The government warned, however, that a full-fledged recovery is not firmly established.

"The difficulties and challenges in the current economic development are still numerous," a statistics bureau spokesman, Li Xiaochao, said at a news conference. "The basis of the rebound of the people's economy is not stable."

The faster growth came despite a plunge in China's trade and foreign investment since late 2008, reflecting China's continued dependence on its 4 trillion yuan ($586 billion) stimulus to keep the economy expanding.

The government is trying to reduce reliance on exports by boosting domestic consumption with its plan to pump money into the economy through a massive scheme to build new airports and other public works.

Most of the money has gone to state-owned construction companies and suppliers of steel and concrete, but it is flowing into the private sector as those companies pay workers and buy other materials.

Rock Jin, chief economist for Sinolink Securities in Beijing, said 2.5 percentage points of the 7.9 percent quarterly growth came from stimulus-financed investment and the rest from production.

"If the investment-driven portion of GDP growth can be maintained around 2.5 percent, it will be no problem achieving the goal of 8 percent growth this year," Jin said.

Cut reliance on exports
Consumer prices in June fell 1.7 percent from a year earlier, the statistics agency said, giving Beijing a freer hand to keep spending on its stimulus without a danger of adding to pressure for prices to rise.

Beijing's stimulus aims to reduce reliance on exports by boosting domestic consumption through higher spending on construction of highways and other public works. Most of the money has gone to state-owned construction and steel companies, but it is starting to flow to the private sector as builders hire workers and buy other materials.

Industrial output rose 10.7 percent in June from a year earlier, faster than May's 8.9 percent growth, the statistics agency said. It said retail sales rose 15 percent in the first half from a year earlier, while first-half spending on factories and other fixed assets was up 33.5 percent.

The wave of positive data in recent weeks has encouraged investors, driving a stock market boom that has boosted China's benchmark Shanghai Composite Index by 75 percent since the start of the year.

The latest rise in quarterly growth "indicates that the country is on course to achieve its growth target for the year," said Jing Ulrich, JP Morgan & Co.'s chairwoman for China equities, in a report to clients.

Li, the government spokesman, said Beijing is closely watching prices to make sure its stimulus and rapid growth in bank lending and investment do not ignite inflation.

"There are still quite a lot of uncertainties," the spokesman said. "We should remain watchful about changes in prices."

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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