China's economy posts steady growth but risks remain

Xavier Trudeau
Juillet 17, 2017

China's gross domestic product (GDP) for the second quarter continued its pace in the first quarter as industrial output and strong consumption lifted the country's factories.

Central banks around the world are focused on the persistent low inflation, and the PBOC is no different, with CPI inflation printing 1.5 per cent in June, largely in line with market expectations.

The Chinese government has sought to dampen soaring property prices in recent months by rolling out a host of restrictive measures, indicating real estate is a major contributor to economic growth.

The PBOC shifted to a modest tightening bias at the start of this year, guiding market interest rates higher during the first quarter, including immediately after the U.S. Federal Reserve raised rates in March.

Shilen Shah, bond strategist at Investec Wealth & Investment, said: "The better than consensus print for Chinese Q2 GDP suggests that the economy is maintaining momentum with both industrial output and fixed asset investment somewhat stronger than estimates". That was higher than analysts' expectations of a 6.8 percent expansion.

Rounding off the quartet of data beats, urban fixed asset investment grew by 8.6% between January and June compared to the same period in 2016, topping the 8.5% pace expected by economists.

The bank has raised its 2017 annual GDP projection to 6.8 percent on-year from 6.6 percent previously.

President Xi Jinping is expected to hold on to power at the party congress, giving him more control during what analysts called are a long overdue but dire reforms like restructuring huge state firm debt.

"Overall, the economy continued to show steady progress in the first half...but worldwide instability and uncertainties are still relatively large, and the domestic long-term buildup of structural imbalances remain", a statement released by China's National Bureau of Statistics said.

Meanwhile, with growth in H1 2017 above the 6.5 percent growth target, the overall policy tone will remain unchanged, and the Chinese authorities will continue to conduct "deleveraging" efforts in the coming quarters, the report added.

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