China's economy expanded more than expected in the second quarter of the year, data showed today, fuelling hopes growth may be stabilising, but analysts warned private investment still needed to pick up.
The world's second biggest economy grew 6.7 per cent year on year in April-June, slightly quicker than forecast in an AFP survey and the same as the previous three months.
The result is also in line with the government's 6.5-7.0 target for the full year and will provide some much-needed relief as China and key driver of the global economy suffers its worst rates of growth for 25 years.
"The national economy has achieved moderate but steady and sound development," National Bureau of Statistics spokesman Sheng Laiyun said, adding he was confident that the annual growth target could be achieved.
Markets were unmoved by the figures, with Shanghai's composite index ending the morning slightly lower.
However, economists analysts said the growth was driven by state investment in infrastructure and a real-estate rebound, suggesting it may be hard to maintain in the longer-term.
"China is on track of achieving this year's growth target," said Haibin Zhu, JP Morgan China chief economist. But he added that while industrial production was "very strong", private investment was weak.
After decades of breakneck growth policymakers are now trying to retool the economy, embracing weaker growth as a trade-off for structural reforms to wean the country off cheap exports and massive government spending in favour of domestic consumption.
But the transition has proved challenging.
Fixed asset investment, a gauge of infrastructure spending, rose nine per cent in the first half of the year, amid a record credit binge in the first quarter aimed at stimulating China's slowing economy.
And investment by private businesses grew by less than three percent in the first half of the year, the data showed.
Sheng blamed the slowdown in private investment on overcapacity in traditional industries, barriers for private firms to enter some sectors, and limited access to loans.
Tom Rafferty of the Economist Intelligence Unit said "levels of state investment we have seen are not sustainable if the authorities are at all serious about curbing debt risks".
The "greatest concern" is the slide in investment by private firms, he added, in a sign that businesses are worried about the wider economy and Beijing is "failing to deliver on promised market reforms”.
Factory production and consumer spending grew slightly, and industrial output rose over six per cent on year in June, a slight increase on the previous month, although retail sales rose far more than expected.
The data come days after another downbeat reading on trade, which showed the fall in imports and exports accelerated in June.
Klaus Baader, Hong Kong-based chief economist for Asia Pacific of Societe Generale, said: “I think it has been engineered by significant reacceleration in credit growth. He added that the growth figure was "a little bit disappointing", given the scale of lending expansion.
Official Chinese figures are viewed with widespread scepticism, and just days ago the government altered its growth calculation method for the second time in less than a year.
Today's figures "should be taken with a grain of salt" because of the political pressures on officials to meet the growth target, research firm Capital Economics said in a note.