China growth picks up in sign of recovery

China's economic growth picked up slightly in the second quarter of the year on the back of some crucial government stimulus, allaying fears of a slowdown.

The gross domestic product expanded 7.5 percent from a year earlier in the three months ending in June, picking up from the pace of 7.4 percent in the first quarter and pointing to economic stabilization, the National Bureau of Statistics said yesterday.

In the first half, China's economic output amounted to 26.9 trillion yuan (US$4.35 trillion), up 7.4 percent year on year. It still trailed the 7.5-percent target for this year.

"China's growth has been stable and it advanced in the second quarter," said Sheng Laiyun, a bureau spokesman. "The stabilization is broad-based, ranging from production, employment, inflation to people's income and agriculture."

In the first six months, more than 7 million new jobs were created in urban areas, compared with the whole-year target of 10 million.

The Consumer Price Index edged up 2.3 percent, comfortably below the upper limit of 3.5 percent. In terms of economic structure, the service sector grew 8 percent, outperforming the manufacturing sector to become the biggest source of growth.

Zhu Haibin, chief economist at JPMorgan, said the recovery in the second quarter served as an insurance to allay policymakers' concerns over a slowdown. "The growth momentum is improving, which is what policymakers would like to see and which would convince them to continue the existing policies."

Since March, China has adopted a set of "mini stimulus" policies to bolster the country's economy, which slipped to an 18-month low in the first three months. The policies included pro-growth fiscal policies to encourage railway construction, selective reserve requirement ratio cuts, adjustment of loan-to-deposit ratio and more administrative efficiency to facilitate trade. The policies have yielded positive results as in the first six months, industrial production increased 8.8 percent and retail sales rose 12.1 percent, both 0.1 percentage point faster than that in the first quarter.

In June, China's manufacturing sector registered its best performance this year with the Official Purchasing Managers' Index rising to 51 from 50.8 a month earlier.

Fixed-asset investment gained 17.3 percent to 21.2 trillion yuan during the January-June period, down from 17.6 percent in the first quarter, mainly due to inflow of less funds into housing development.

Despite the uptick signs, Zhou Hao, an economist at Australia & New Zealand Banking Group Ltd, said China may still need further monetary easing to reduce the downside risks to the economy, such as those from the real estate sector.

"Specifically, extending the reserve requirement ratio cut to the rest of the banking system may be needed in the early third quarter to deliver the 7.5-percent growth target," Zhou said.

Stephen Green, an economist at Standard Chartered, also said the second-quarter data looked better, but the recovery was still on fragile ground.

"Further targeted monetary loosening and other measures are likely to shore up activity," Green said.