Investment Fuels China's 7.9% GDP Growth

飞雪寒冰

China's gross domestic product (GDP) growth accelerated to 7.9 percent in the second quarter as bank lending and investment soared against a backdrop of loose monetary policy.

Growth increased from 6.1 percent in the first quarter and 6.9 percent in the fourth quarter 2008.

The expansion of China's economy, the world's third largest, had registered double digits for two decades before a global recession hit last year.

Caijing's chief economist Shen Minggao said if the economy continues to be driven by a single engine – investment -- the imbalance between demand and supply in China's domestic market will undoubtedly worsen.

Shen's warning came after June and quarterly economic figures were released by the National Bureau of Statistics on July 16.  

"It will become more challenging for the government to adjust the economy," said Shen. He's promoting structural adjustments by the government rather than additional investment to ensure a solid recovery.

Official statistics showed fixed asset investment is the major driving force behind GDP growth.

On June 30, outstanding loans by commercial banks stood 34.4 percent higher than the level recorded on the same day 2008. And in the January-June period, national fixed asset investment increased 33.5 percent year-on-year, while urban fixed asset investment expanded by 33.6 percent.

飞雪寒冰

China's gross domestic product (GDP) growth accelerated to 7.9 percent in the second quarter as bank lending and investment soared against a backdrop of loose monetary policy.

Growth increased from 6.1 percent in the first quarter and 6.9 percent in the fourth quarter 2008.

The expansion of China's economy, the world's third largest, had registered double digits for two decades before a global recession hit last year.

Caijing's chief economist Shen Minggao said if the economy continues to be driven by a single engine – investment -- the imbalance between demand and supply in China's domestic market will undoubtedly worsen.

Shen's warning came after June and quarterly economic figures were released by the National Bureau of Statistics on July 16.  

"It will become more challenging for the government to adjust the economy," said Shen. He's promoting structural adjustments by the government rather than additional investment to ensure a solid recovery.

Official statistics showed fixed asset investment is the major driving force behind GDP growth.

On June 30, outstanding loans by commercial banks stood 34.4 percent higher than the level recorded on the same day 2008. And in the January-June period, national fixed asset investment increased 33.5 percent year-on-year, while urban fixed asset investment expanded by 33.6 percent.

飞雪寒冰

Questions have been raised over whether industrial output has been overestimated. The debate continues despite statistics showing higher electricity consumption and taxes in June.

Inflationary pressure in the first half of the year was modest. The Consumer Price Index (CPI) has fallen in the past five consecutive months, year-on-year. Prices declined 1.7 percent year-on-year in June to a new low.

Shen said CPI probably hit bottom in the second quarter, and may remain low in the third quarter.

Prices for tobacco and liquor rose 1.7 percent, while home appliance and maintenance services were up 1.3 percent. Price hikes in the service sector were higher than in other sectors.  

Asset prices are rising. June housing prices in 70 large and medium-sized cities rose 0.2 percent.

But as long as consumer inflation is under control, Shen said, policymakers will merely fine-tune the economy to address of increasing fears of asset bubbles.