China growth beats forecasts but stocks dive again

Wed Jul 15, 2015 4:15am EDT
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By Kevin Yao and Pete Sweeney

BEIJING (Reuters) - China's economy grew an annual 7 percent in the second quarter, beating analysts' forecasts, though its volatile stock markets took a sharp dive in a reminder of the threats to Beijing's efforts to direct the economy out of a slowdown.

Policymakers had already unleashed a series of measures to pull stocks out of a 30 percent nosedive and appeared to have succeeded last week, but Wednesday's tumble could reawaken concerns over the government's ability to manage the economy.

The day began on a positive note with the growth figures and monthly activity data that also beat expectations across the board, with factory output hitting a five-month high, following reports of increased bank lending on Tuesday.

As the National Bureau of Statistics released the upbeat figures, it described the stock markets as key to economic stability. As if on cue, the key indexes, already down in morning trade, fell more than 4 percent in the afternoon.

The CSI300 index eventually ended down 3.5 percent, while the Shanghai Composite Index lost 3 percent.

"Investors liquidated their positions as the GDP data failed to impress," said Steven Leung, a director at UOB Kay Hian in Hong Kong.

It has been a difficult year for the world's second-largest economy, with slowing growth in trade, investment and domestic demand compounded by a cooling property sector, deflationary pressure, then the equity market panic from mid-June.

Beijing will need to keep providing liquidity to the stock exchanges and cut the cost of corporate financing, which remains far higher than returns on investment for many companies.   Continued...

Labourers work at a construction site for a new building in Shanghai, March 5, 2015. REUTERS/Aly Song