China’s shows steady growth in second quarter

BOFIT Viikkokatsaus / BOFIT Weekly Review 2016/29

China’s National Bureau of Statistics reports that GDP grew 6.7 % y-o-y in real terms in the second quarter, a growth pace identical to the first quarter. Given the challenges China faces in its domestic and foreign markets, many observers had expected growth to slow. Thus, the announced figures slightly exceeded forecaster expectations. China’s GDP growth target is 6.5–7 % for all of 2016.

There are strong indications that a structural shift in the Chinese economy is taking place. Service sector 2Q growth was again clearly higher than growth in the manufacturing and construction sectors, and services generated 54 % of economic activity. Strong domestic consumer demand was reflected in stable 10 % y-o-y real growth in retail sales, which is supported by robust, continued wage growth. In particular, online shopping is increasingly popular among consumers.

Real growth in fixed investment this year has increased by about 10 % y-o-y, a clearly slower pace than in recent years. Moreover, investment growth has been sustained mainly through public sector spending on fixed assets, which has risen a brisk 20 % y-o-y. Especially spending on infrastructure projects has grown rapidly. Growth in private investment, on the other hand, has slowed all year and in June real growth was only about 2 % y-o-y. The slow pace in private investment growth likely stems from several factors, including cautious expectations about the domestic economy, weak export demand, overcapacity problems in many industries and the need for indebted companies to tackle their debt problems.

Real growth in Chinese GDP, 2000–2015 plus first two quarters of 2016, %
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Sources: China National Bureau of Statistics and CEIC

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