Chinese economy picked up speed in second quarter

Looser monetary policy stimulates growth

The Chinese economy picked up momentum in the second quarter of this year, according to data from the Chinese National Bureau of Statistics.

Overall, output expanded by 7.5% year-on-year between April and June, slightly up from 7.4% in the first quarter.

This pick-up was largely down to looser monetary policy as the Chinese government looked to stimulate growth after a lacklustre first-quarter performance by spending on infrastructure projects.

Industrial production growth accelerated to 9.2% year-on-year in June, compared with 8.8% in May. Meanwhile, credit in the economy grew at its fastest pace in the three months to June.

The government’s stimulus helped to offset the drag from weak exports and a slowdown in the property market. But while looser monetary policy helped to lift up the second quarter's growth, rising levels of credit have resurrected concerns about the risks around the country's financial sector, with many worrying about a potential ‘Lehman moment’ in China, especially given the rise of off-balance-sheet credit (commonly referred to as shadow banking).

The Centre for Economics and Business Research (Cebr) does not share these concerns, however. Commenting on the Chinese data, Cebr argued that credit is not as significant an issue in the Chinese economy as it was in the US during the pre-Lehman period.

It added: “An Asian-style currency crisis also looks to be off the cards, with capital controls presenting the government with plenty of levers to control the currency.

Finally, the debt-to-GDP ratio in China is estimated to be below 30%, leaving the authorities with plenty of fiscal room at their disposal to provide more stimulus further down the line.”

Cebr expects China to comfortably meet its 7.5% target for year-on-year GDP growth in 2014.

About the author

Sally Percy is editor of The Treasurer

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