China grows 7.9% on stimulus boom

China grows 7.9% on stimulus boom
The Economic Times, July 17, 2009 Page 13

AP BEIJING

CHINA’S second-quarter growth accelerated on a stimulus-fed investment boom, the government reported Thursday, sparking a rise in Asian stocks on hopes the world’s third-largest economy could help to lead a global recovery.

The economy grew by 7.9% from a year earlier, up from the first quarter’s 6.1% growth rate, the National Bureau of Statistics said. Analysts said full-year growth should easily reach the government’s 8% target.

“This should give people confidence that China’s economy is on strong footing and that there are a lot better days ahead,” said Alan Landau, Hong Kong-based president of Marco Polo Pure Asset Management.

The pickup in growth reflected the impact of Beijing’s 4 trillion yuan ($586 billion) stimulus, an effort to offset a collapse in exports by pumping money into the economy through spending on public works construction.

“We are in a blood transfusion-led economic recovery,” said Rock Jin, chief economist for Sinolink Securities Co. in Beijing. Many analysts expect China to be the first major country to emerge from the worst global slump since the 1930s. That could help propel global growth as China imports more raw materials, industrial components and consumer goods. In the United States, a Chinese recovery could help to boost exports of factory and construction equipment and farm goods such as soybeans. But the bulk of China’s imports are raw materials such as Australian iron ore and components from other Asian countries, so the direct impact on the United States and Europe might be limited. China’s strong quarterly results, coupled with higher US corporate profits, spurred a rally in Asian stocks. Markets in Tokyo, Hong Kong, South Korea and Singapore all rose. In mainland China, markets fell as investors took profits after a rally, but the benchmark index is still up 75% this year on enthusiasm about the stimulus.

The International Monetary Fund raised its forecast of China’s 2009 growth this month by one percentage point to 7.5%. The World Bank boosted its forecast last month from 6.5% to 7.2%, citing unexpectedly strong stimulus results. Still, the Chinese government warned that despite the latest improvement, a full-fledged recovery is not firmly established.

“The difficulties and challenges in the current economic development are still numerous,” said a statistics bureau spokesman, Li Xiaochao. “The basis of the rebound of the people’s economy is not stable.”

Goldman Sachs said compared with the previous quarter—the way other major countries measure economic expansion—growth accelerated to a near-record 16.5% on an annualised basis. JP Morgan said it calculated that sequential expansion at 14.9%. China’s growth sank last year as global demand for exports collapsed, wiping out up to 30 million factory jobs. But the economy was regarded as poised for a quick a recovery, with strong banks unhampered by the mortgage crisis that battered Western lenders.