By AARON BACK
China reported a raft of data that showed its economy continuing to expand quickly, easing immediate concerns about a possible slump in growth but raising the prospect of further tightening measures as the government continues its fight against inflation.
China’s gross domestic product in the second quarter rose 9.5% from a year earlier, the National Bureau of Statistics said Wednesday. That was slower than the first quarter’s 9.7% growth, but slightly above economists’ expectations.
Measured against the first quarter, growth in the world’s No. 2 economy accelerated slightly in the April-June period, the statistics bureau said. Adjusted for seasonal factors and annualized — the way economic growth is measured in most major economies — China’s GDP rose 9.1% in the second quarter, up from 8.7% growth in the first quarter, according to a Wall Street Journal calculation based on the bureau’s data.
The statistics bureau also reported that a key measure of industrial output rebounded last month, rising at its fastest clip since May of last year. And it said that property investment and sales—a pillar of growth in China’s economy—remained robust in June.
A series of measures since last year to rein in consumer prices—including five interest-rate increases in nine months—had fueled concern among some analysts that Beijing might step too hard on the brakes, stalling the world’s most important engine of growth. Indeed, many economists had expected the central bank’s rate increase earlier this month to be its last for the year, but the strong data calls that forecast into question.
“I think this [data report] does increase the chance that we’ll have more rate hikes,” said Royal Bank of Canada economist Brian Jackson. He expects another increase in the third quarter, but says there could even be more.
On Tuesday, Chinese Premier Wen Jiabao said maintaining price stability is still the government’s top priority, though he also addressed slowdown fears, pledging to prevent any “large fluctuations” in growth. That followed news Saturday that the consumer price index surged 6.4% in June, its highest level in three years.
Stock markets were cheered by the strong growth data. The Shanghai Composite index closed up 1.5%, while Hong Kong’s Hang Seng index ended up 1.2%.
Economists said that growth is still likely to slow, in part because of continued government tightening.
“You may ask, where is the slowdown?” said Standard Chartered economist Li Wei. His answer: likely in the second half. “This strong data suggests the government will maintain a tight policy setting at least through the third quarter,” he said.
Shen Laiyun, spokesman for the National Bureau of Statistics, voiced confidence that the country isn’t headed towards a hard landing.
“The drivers of China’s economic growth are relatively strong, and the risk of a fast slowdown in economic growth is relatively small,” he said at a press briefing on Wednesday’s data. Mr. Shen also said higher interest rates will benefit the Chinese economy in the long run by guiding it toward a more sustainable path of development.
The bureau said that industrial production in June came in much faster than expected, rising 15.1% from a year earlier, compared with 13.3% in May. Economists had expected it to slow to 13.1%.
Investment in real-estate development totaled 2.625 trillion yuan (about $405 billion) in the January-June period, up about 32.9% from a year earlier, the Statistics Bureau said. That was down slightly from the January-May period. But sales activity appeared to pick up in June. Commercial and residential property sales in the first half of the year rose 24.1%, accelerating from the 18.1% recorded in the January-May period.
The real-estate sector’s relative resilience suggests that policy makers are trying to carefully engineer a gradual slowdown in the market rather than risk pulling the brakes too hard and precipitating a hard landing for the economy, analysts said. They added that the impact of recent tightening moves, including higher financing costs and home purchase limits, will be more pronounced later this year.
“The data were generally still stronger than expected, and I think the increased activity in public housing construction was one of the catalysts. In the private market, sales and prices in the second-, third-tier cities are still rising, and policy makers are likely to maintain tight credit conditions to curb that enthusiasm,” said Johnson Hu, an analyst from CIMB-GK Securities.
China plans to build 10 million public housing units in the country this year, at an estimated cost of 1.3 trillion yuan, to boost supply for lower-income home buyers and alleviate price pressure.
Housing transactions in major cities have declined in recent months from a year earlier following a series of antispeculative policy measures, including higher interest rates and administrative measures such as limits on home purchases.
In June, however, there were more property launches, resulting in an increase in sales especially in the lower-tier cities where the tightening measures aren’t as rigorously enforced. Analysts point out that housing inventory levels have also increased last month, and anticipate further rises in the coming months as more developers roll out new projects.
“Some developers are optimistic that there will be a rebound in the second half, especially after their experience in 2008 when they stopped building during the financial crisis and ended with insufficient homes to sell in the 2009 recovery,” said Jinsong Du, an analyst at Credit Suisse.
Mr. Du added that even financially weaker developers are pushing ahead with construction because they need presales for cash flow, but that they are likely to delay the construction process.
—Owen Fletcher in Beijing and Esther Fung and Andrew Galbraith in Shanghai contributed to this article.
