China Economic Expansion Exceeds Estimates on Factory Rebound

Updated on
  • 2Q GDP expands 6.9% YoY, matching robust momentum in 1Q
  • Retail sales, investment, industry output all beat estimates

China 2Q GDP Exceeds Estimates

China’s economy maintained its momentum last quarter, as global trade and domestic demand spurred a pickup at the nation’s factories.

Key Points

  • Gross domestic product increased 6.9 percent in the second quarter from a year earlier, compared with a 6.8 percent median estimate in a Bloomberg survey, matching the pace of expansion in the first quarter
  • Industrial output rose 7.6 percent in June from a year earlier, compared with an estimated 6.5 percent increase
  • Fixed-asset investment climbed 8.6 percent in the first half of this year, versus a median forecast of 8.5 percent gain
  • Retail sales jumped 11 percent from a year earlier in June, compared with a median estimate of 10.6 percent in a Bloomberg survey

Big Picture

The expansion highlights the resilience of China’s economy, as activity has remained robust even as policy makers have tried to curb excessive and speculative borrowing, leading to a slowdown in money supply growth. Synchronized growth in most developed markets has meant that exports have helped to keep the expansion on track, and the effects of a cooling property market are yet to kick in. The statistics bureau said the result "provides a solid basis" for meeting the full-year growth target of 6.5 percent or above.

Economist Takeaways

"The immediate driver is much stronger industrial production, which is being lifted by many factors: recovering exports, very low inventory, robust retail sales and investment-led demand," said Gene Ma, chief China economist at the Institute of International Finance in Washington.

"It shows that Beijing’s financial deleveraging was well-timed and carefully targeted not to have much spillover on the real economy," said Rob Subbaraman, chief economist for Asia ex-Japan at Nomura Holdings Inc. in Singapore. "Fiscal stimulus remains an important driver of growth. It’s also encouraging to see more signs of rebalancing with the pickup in retail sales growth."

Citi’s Liu discusses China’s 2Q GDP figures and what they mean for the economy

(Source: Bloomberg)

"What is important to note is that this is heavily driven by credit and fixed-asset investment," said Christopher Balding, an associate professor at the HSBC School of Business at Peking University in Shenzhen. "Despite the talk, there is no change to the Chinese growth model."

"Growth overall was very robust," said Iris Pang, an economist at ING Bank NV in Hong Kong. "It is more of a consumption story than an investment story."

The Details

  • In the quarter, output expanded 1.7 percent from the first three months
  • Services led year-to-date growth, with the tertiary sector expanding 7.7 percent
  • Crude steel production expanded to an all-time high last month
  • Consumption contributed 63.4 percent to GDP growth in the first half
  • Services accounted for 54.1 percent of GDP value in the first half

— With assistance by Xiaoqing Pi, Yinan Zhao, Miao Han, and Kevin Hamlin

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