China 2Q GDP growth beats expectations on strong factory output

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BEIJING (July 17): China's economy grew faster than expected in the second quarter as industrial output picked up and investment remained strong, though analysts expect growth to slow over the remainder of the year as policymakers seek to reduce financial risk.

The economy grew 6.9% in the second quarter from a year earlier, the same rate as the first quarter, the National Bureau of Statistics said on Monday. Analysts polled by Reuters had expected the economy to expand 6.8% in the April-June quarter.

On a quarterly basis, growth picked up to 1.7% from 1.3% in the first quarter, in line with expectations.

Growth in China's economy this year has beaten expectations as exports recover and property construction booms, though many analysts expect the world's second-largest economy to lose steam later in the year as policy measures to rein in red-hot housing prices and a rapid build-up in debt take a greater toll on growth.

"Overall, the economy continued to show steady progress in the first half... but international instability and uncertainties are still relatively large, and the domestic long-term buildup of structural imbalances remain," the statistics bureau said in a statement with the data.

The government is aiming for growth of around 6.5% in 2017, slightly lower than last year's actual 6.7%, which was the weakest pace in 26 years.

China's factory output grew 7.6% in June from a year earlier, the fastest pace in three months, while fixed-asset investment expanded 8.6% in the first six months of the year, both beating forecasts.

Retail sales rose 11.0% in June from a year earlier, the fastest pace since December 2015 and beating analysts' expectations for a 10.6% rise.

An upturn in global demand for Chinese products could be a boon for the country's leaders as they seek to contain a dangerous build-up in debt that has ballooned to 277% of GDP.

Meanwhile, authorities have been pushing forward supply-side reforms to cut excess capacity in steel and coal sectors.

Data last week showed both China's exports and imports rose faster-than-expected in June from a year earlier, which could offset weakness in other parts of economy in the second quarter.

Beijing has set a slightly more modest growth target of around 6.5% for 2017, theoretically offering more wiggle room for reforms after the economy grew 6.7% in 2016 — the weakest pace in 26 years.

China's economic growth is expected to cool further to 6.6% in 2017, according to a Reuters poll of analysts, with the pace of expansion slowing steadily in the third and fourth quarter.

The People's Bank of China 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 US Federal Reserve raised rates in March.

But the central bank injected substantial liquidity last month to help avoid an end-quarter cash crunch as Beijing tightened regulations to force banks to deleverage.