China Surprisingly Strong GDP Growth 7.9%

Posted by: Frederik Balfour on July 16, 2009

China’s GDP growth clocked an impressive 7.9% in the second quarter, surpassing economists expectations about the Chinese economic recovery. There is even now talk of a V-shaped recovery, which just a few months ago looked at best like a U-shaped rebound after 6.1% growth in the first quarter, the worst performance in a decade. No doubt the latest economic good news published by China’s National Statistics Bureau on July 15 will lead to yet another flurry of GDP upward revisions of China’s growth path.

HSBC China economist Qu Hongbin wasted no time in upgrading his figures: he reckons the Chinese economy will grow 8.1% this year and GDP expansion will accelerate to 9.5% in 2010. Previously he called for 7.8% and 8.1% in 2009 and 2010. His bullish upgrade for next year suggests the Chinese recovery will be far broader and deeper than most expected, evidence that growth will be sustained not just by the massive $586 billion fiscal stimulus package, but by strong growth in consumer demand.

Jing Ulrich, chairman and managing director of China Equities at JP Morgan (JPM) said in a note to clients today that “Despite the global economic downturn, China’s economic recovery will continue in the second half on the strength of the government’s fiscal stimulus and loose monetary policy. Recovering property investment and buoyant consumer spending suggest that these policies are proving effective at bolstering domestic demand at a time when exports remain structurally fragile.”

Officially, the Chinese government is still forecasting 8% growth for 2009, down from last year’s 10.6%, but still a remarkably strong performance given the plunge in exports, a key growth driver in the past. But there’s mounting evidence that China’s long cherished goal of on the back of local consumption. Take the auto market. At the beginning of the year the industry association was predicting a contraction in auto sales on the back of an anemic (for China) 6.7% growth last year. Instead, the China Association of Automobile Manufacturers on July 7 reported a whopping 17.7% increase in sales to 6.1 million vehicles, and is predicting this year’s sales could even top 12 million. For instance, General Motors sales through its joint ventures rose 38% in the first half to 814,442 vehicles.

The strength of the property sector has been another big surprise. Property sales were up 53% in the first six months from a year earlier, according to a survey commissioned by the statistics bureau and published in the China Information News, while nationwide prices averaged across 70 cities climbed year on year in June. This masks the fact that in second and third cities prices have been strengthening much more. Property normally accounts for about 25% of fixed asset investment in China and is a key form of wealth holding for most Chinese. Optimism about housing prices will translate into greater consumer confidence.

However China’s stimulus efforts still carry risks. New lending was up a whopping 201% during the first half of more than $1 trillion, equal to nearly one quarter of GDP, part of the reason why the Shanghai stock market is up nearly 75% this year. Easy money means some marginal investment projects that commence when interest rates are low may run into difficulties down the road when monetary policy tightens.

Reader Comments

Cooked economic data

July 16, 2009 7:53 AM

Do you know that the numbers are cooked? Electicity use droped 4%! While industrial production rose 5% and GDP 6%. Do you belive the stats!

gabe, san diego

July 16, 2009 5:22 PM

back to selling cheap, defective trinkets to the world! go China!

Grast

July 16, 2009 9:18 PM

If you talk with some economists or ordinary people in private, you may find it is difficult to believe the data is true. Even under the high-growth, the risk is high since the GDP is driven bu bubble, but the economy is not improving. To make things worse, the people's consumption is beginning to decline.

LI

July 16, 2009 9:51 PM

Please ignore any positive economic news from China and everyone here will happily live ever after because:

Chinese government data: 11% GDP growth in 2008. Response: Oh it's overheating.

Chinese government data: 6.1% GDP growth in 1Q 2009. Response: Oh it's collapsing.

Chinese government data: 7.9% GDP growth in 2Q 2009. Response: Oh it's faking.

md3

July 16, 2009 11:06 PM

Are you guys tired of saying 'fake growth data' from China? It has been going on since the year 2000. If China really had been faking the data, where the huge foreign exchange reserve would come from?

you know what

July 16, 2009 11:50 PM

expanding domestic demand together with balancing domestic development and opening wider to the outside world really worked!just the macro-control ways.

T-Bird

July 17, 2009 2:01 AM

As an ordinary Chinese, I deeply doubt the figure. My salary is the same as last year, and I have been spending less during this recession time. Price of everything is going up, gas,food,transportation, etc, and the country is charging more tax than before, so are the banks. Some doemestic bank just increses some service fee by 100%, can you believe that? No? But it's 200% ture. After all, having less or same amount of money, paying more tax, spending less, all these mean the life is not getting better, people are not getting richer. So what does GDP growth mean? I don't know, but who cares.

RodgerRafter

July 17, 2009 2:55 AM

Funny how so many people just don't want to believe that China is doing well.

Go to China and you'll see that it is an amazing country with an extremely optimistic and hard working workforce. Take a close look at what the Government is actually doing and you'll realize that they are taking all the right steps to turn the global economic slowdown into an opportunity to make Chinese industry even stronger and more competitive. All the while, the government remains focused on maintaining full employment and improving the people's quality of life.

Then invest in Chinese companies because it's the only way you'll make a decent return. US policy makers continue to sell us out to the big banks and just about anything you invest in here is either overpriced or will lose ground to inflation.

Joe

July 17, 2009 3:17 AM

I see a lot of sour grapes.

Frank

July 17, 2009 7:08 AM

WHY IT WORKS!?
China has a very different system than US. Chinese government has huge power to create business, such as, lower auto purchase tax; lower lending requirement from 30%-40% down payment to 20%; start many new infrastructures, such as, railroad, highway, airports, etc. The government can act in weeks. But, in US, government doesn't have such power, and economic policy has to be passed by the congress then take effect in a year. Even a good policy, you may not see it soon.

Frank

July 17, 2009 7:10 AM

WHY IT WORKS!?
China has a very different system than US. Chinese government has huge power to create business, such as, lower auto purchase tax; lower lending requirement from 30%-40% down payment to 20%; start many new infrastructures, such as, railroad, highway, airports, etc. The government can act in weeks. But, in US, government doesn't have such power, and economic policy has to be passed by the congress then take effect in a year. Even a good policy, you may not see it soon.

stupid american

July 17, 2009 8:18 AM

watch the data your broken GM's revived by China. let's see your auto icon how misery in US. no one want to buy these craps. so you amercicans invented massive cheating financial tool to grab money of world. play with sword, die by sword. we all see your mess situation, which will continue.... for long long time.

shunsui kyouraku

July 17, 2009 11:17 AM

7.9 still it is a very conservative number. i guess 9 is the true figure. we all know that china never show their true prowess. remember that sun tzu is a Chinese and his work is embedded to their economic policy.

Dietrich

July 17, 2009 12:43 PM

COOKED DATA? How about the AAA rated financial toxic products being criminally sold worldwide from the land of rising bailouts. How about international speculative attacks on other currencies around the world being launched from the same crime scene called Wall Street. The biggest heist ever. Jesse James blesses America and its coalition.

Morr

July 17, 2009 12:53 PM

" Live by the swords , die by the swords " Enjoy the video and learn the lesson: http://www.youtube.com/watch?v=Q6l1rwQJjYg

Jeff

July 17, 2009 8:18 PM

China selling cheap things is true dun blame ppl simply for saying it. accept it.

however one also has to realize why China can get rich by selling cheap stuff is becoz in this world there are more poor ppl than rich ppl. this poor ppl including the middle class with alot of commitment. this including everyone.

if you want this issue to go away let see if your almighty country can have the power to bring all of humanity to rich class level. then china will change, china always change as according to how the world change.

can you?, again we cannot as in the end we are all human that lives within and limit our selves to the concept of yin and yang. :)

Shunjing

July 20, 2009 9:03 PM

The only way US knows how to compete is through threats , intimidation and espionage. They sell lies and toxic stuffs. Chinese can blame corrupt officials. Who can the Americans blame.

Shunjing

July 20, 2009 9:08 PM

The only way US knows how to compete is through threats , intimidation and espionage. They sell lies and toxic stuffs. Chinese can blame corrupt officials. Who can the Americans blame.

T Bird

July 21, 2009 2:04 AM

In China, rich people are getting even richer, and poor are getting even poorer . Price of house is skyrocketing because rich ones are trying to by a second house, and the stock marketing is doing well becoz this where the stimulus money actually goes. For 95% of people, life is not getting better.

C. H. Ng

July 21, 2009 3:11 AM

Sure...the rich people are getting richer and the poor are getting poorer. This is not only happening in China but everywhere in this world. But to claim that 95% of the Chinese people are not having better lives, I do not agreed with you, Mr or Ms T Bird.

I have been to China many times over the past several years and the latest was only last week. I was at the northern cities of Changchun and Tianjin where at shopping malls and eatery joints, I can see many were packed with people shopping & eating. At niche shops where branded goods such as LV & Gucci bags are being sold at several thousand yuan, customers were just buying & paying like nobody's business. Normal meals at restaurants for 4 persons easily cost well over one to two hundred yuan. And mind you, you need to queue to be seated.

From what I can see, I would put the figure as around 60% and not 95% as you claimed, @T Bird.

T Bird

July 21, 2009 9:44 PM

Hi C.H.Ng, if you are comparing data of 10 ,or maybe even 5 years ago to now, no doubt that you are right.I personally earn about twice as much as I did 5 years ago. But what I am talking about is the most recent two years, since when the economic crisis happened. In the town where I work, about 3 or 4 hotels have shut down their business, and another 3 new hotels have been completed from a construction standpoint, for more than 1 year, but still haven't open yet. And the small car service company for my company, which used to have 7 or 8 cars, now only has 3. These are real data I can see and sense, and that is why I don't understand the 8.1 GDP growht.

C. H. Ng

July 22, 2009 5:07 AM

Wow..at least you are earning twice as much as you did 5 years ago. Over here I don't think many of us can earn 50% more than we did during this 5 years period, if we are to take into consideration of the miserable 3% to 5% average yearly salary increment.

Therefore Mr T Bird, you shouldn't be complaining here in the first place. In fact I would say you are lucky your government is very proactive in redressing the economic situation in your country. And also doing it in the right & forceful manner. Just look at other countries or just my country for the matter. We are now feeling the pinch of a slowing economy which I think we would not be able to recover maybe until 2nd half of next year. I am in the construction industry and should know better as this industry supports many other industries down the line. Currently you can see not much activities going on here unlike what I can see while I was in China last week.
So bear with it, my friend, your government is leading your country in the right direction.

T Bird

July 22, 2009 8:48 PM

You are right, to some extent. I am trying to vent, while seeing so much corruption happen every day, and every time when some government related case happens, you will see some ridiculous but some how creative explanation from them,and it be comes hot topic on the internet. And that is one of the main reason that so many of us don't trust the data from government. But I have to admit that generally China is going in the right direction. One major reason: we export goods at a lower price, and salary here is much lower than US and Europe. Under this circumstances,it's hard for China to not grow.
PS: It's just reported the industry electricity usage of the 1st half of this year is 5.9% lower than the same period of last year. Again, that make it more difficult to understand the 8.1% growth.

China Rock

July 29, 2009 6:22 PM

Yes, we know the whole world hates China. We love our country. China was invaded by Japan, Russia and other Civilized countries, Red China never lost 1 inch of land. No foreign countries can put their troop on our land, no foreign countries can set up colonial ruling in our cities. we have human rights problem, but we are working on it. That is still better than be murmured by foreign soldiers. Our laws are not perfect, but it is still better than "no Chinese and dog allowed" colonies set up by foreign countries in our land. That's the biggest achievement for us just to become a country with self-sovereignty!

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