Government spending steadies China's economy in second-quarter but risks grow

Fri Jul 15, 2016 5:32am EDT
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By Elias Glenn and Kevin Yao

BEIJING (Reuters) - China's economy grew slightly faster than expected in the second quarter as a government spending spree and housing boom boosted industrial activity, but a slump in private investment growth is pointing to a loss of momentum later in the year.

The world's second-largest economy grew 6.7 percent in the second quarter from a year earlier, steady from the first quarter but still the slowest pace since the global financial crisis, data showed on Friday.

Analysts had expected it to dip to 6.6 percent.

While fears of a hard landing have eased, investors worry a further slowdown in China and any major fallout from Brexit would leave the world more vulnerable to the risk of a global recession.

But signs of steadier headline growth in China may conceal an economy that is growing increasingly lopsided, as growth becomes ever more reliant on government spending and debt.

An anemic private sector and signs of fatigue in the property market point to the increasing possibility the government may need to provide additional stimulus this year to hit its growth target of 6.5 to 7 percent.

"We think GDP growth is likely to slow in Q3 and may rebound in Q4 driven by post-flood reconstruction activity. But the rebound will not last long," said Nomura economist Wendy Chen.

Economists at ANZ also believe the second-quarter's growth rate is unlikely to be sustained, pointing to cracks emerging in the property sector, whose recent revival has spurred demand for everything from cement and steel to appliances and furniture.   Continued...

Workers dry wolfberries at a yard in Linze, Gansu Province, China, July 13, 2016. REUTERS/Stringer