China offers hopes for recovery

BEIJING // China's economy continues to power ahead on the back of the government stimulus plan, but the country warns it may not be able to lead the world economic recovery. Defying the global slowdown, China yesterday posted a rise of 7.9 per cent, which was better than expected, in second-quarter GDP. Big increases in state spending and bank lending underpinned the increased growth in the world's third-largest economy and other data, including positive retail sales and factory output figures, added to the picture of strength in the Chinese economy. Strong domestic demand will also support the country's need for commodities, which is good news for commodity-exporting countries. China's economic performance fuels hopes that the country might lead the world out of recession, although the government is not entirely comfortable with the role of global economic saviour. It has warned that external demand needs to improve before the economy can get back to double-digit growth rates. Li Xiaochao, of the state statistics bureau, said China still faced a difficult task to make sure the rebound had a solid basis and was balanced throughout the economy. "There are many difficulties and challenges existing in the current national economic performance," he said. "The base for recovery is still weak. The momentum for picking up is unstable. The recovery pattern is unbalanced and there are still uncertain volatile factors." Wang Tao, the head of China economic research at UBS in Beijing, said: "China has the ability and the resources to stimulate domestic demand, but without external demand picking up it will be hard to get back to the 10 or 11 per cent rates of growth." The strong growth rate compares with a 6.1 per cent rise in the first quarter and makes a government forecast of 8 per cent growth in GDP this year look more likely. Eight per cent is seen as the level of growth necessary to keep unemployment at bay. China's remarkable growth rates of recent years were built on the strength of its export market, which has suffered dramatic declines since the global downturn began. Beijing introduced a 4 trillion yuan (Dh2.14tn) spending plan that aims to reduce reliance on exports by boosting the domestic market, using spending on infrastructure projects such as road and rail construction. The latest data shows at least some of this money is slowly trickling down from state companies to the private sector. China is generally expected to be the first major economy to emerge from recession. The IMF this month raised its forecast for Chinese GDP growth this year by 1 percentage point to 7.5 per cent, while the World Bank raised its forecast last month from 6.5 per cent to 7.2 per cent. The Chinese figures come soon after positive data from Singapore, the US and Europe, and more positive sentiment indicators from Japan. The decline in the European car market seems to be slowing, while Goldman Sachs and Intel posted earnings data that were better than expected, all adding to a picture that the global economy may be levelling out. China's retail sales in the first half of this year rose 15 per cent to 5.87tn yuan from a year earlier, the statistics office said. Industrial output rose 10.7 per cent last month from a year earlier, and first-half output rose 10.7 per cent, slowing from 16.3 per cent in the same period last year. A 1.7 per cent fall in consumer prices last month means there is no inflationary pressure on Beijing, allowing it to continue spending. China's stock market is also in bullish mode, with the benchmark Shanghai Composite Index up 75 per cent since the start of the year. business@thenational.ae