China on track of 7% GDP growth for 2015

LONDON - China's 7.0 percent gross domestic product (GDP) year-on-year growth in the second quarter is better than the going market predictions, suggesting that it is on track for around 7.0 percent GDP growth for all of 2015, economists said here.

China's economy posted seven percent growth year-on-year last quarter, unchanged from the pace in the first quarter, China's National Bureau of Statistics (NBS) announced Wednesday.

Julian Evans-Pritchard, China economist at Capital Economics, said in an analysis piece that China's GDP growth data was better than market expectation consensus, which is 6.8 percent on a year-on-year basis.

Two reasons contribute to the stronger growth, Pritchard said: "The first, and most widely overlooked, is the impact of surging stock market turnover on brokerage activity, which is counted as part of the service sector. The second reason is the growing evidence of a recovery in the wider economy".

He added: "With the drag from the structural slowdown in property and heavy industry now easing, we think that growth is on track to slow only gradually over the course of the next few years. "

Both the GDP growth and June economic activity data were largely above consensus, driven by faster growth in the services sector, infrastructure investment, and property sales, said HSBC's global research team.

Official data showed that China's industrial output in June expanded at 6.8 percent year on year, up from 6.1 percent in May; fixed asset investment grew by 11.4 percent during the first half of the year; and retail sales growth also strengthened in both real and nominal terms last month.

The largest driver appears to be the services sector. The GDP breakdown suggests that the services sector grew 8.4 percent year on year in the second quarter (Q2), up from 7.9 percent in Q1, said HSBC.

"A full sector breakdown has not yet been released, but finance likely remains the fastest growth sector, followed by some improvement in real estate," added HSBC.

However, HSBC suggests: "The improvement in both investment and industrial output growth is still tentative and relatively modest.

In order to strengthen and sustain the recovery, more policy easing measures are still needed and likely in the second half of 2015."

"We forecast another 25 basis points (bps) policy rate cut and 200 bps reserve ratio cut in the second half of 2015. We forecast full year GDP growth 7.1 percent for 2015," added the bank.

Andrew Colquhoun, head of Asia-Pacific Sovereigns at Fitch Ratings, said: "Today's data were in line with Fitch's expectation and track the agency's projection of 6.8 percent growth for the year.

The credit rating agency expects a further sequential pick-up in the second half of the year following recent monetary and credit policy easing.

"The resilience of retail sales in June is a further encouraging sign that downside risk, while not negligible, is receding, despite recent equity market volatility. Nonetheless, the longer-term outlook remains one of structural slowdown as the economy works through a painful process of adjustment and deleveraging," said Colquhoun.