China's Economy Grows 7.9% in Stunning Rebound

July 16, 2009
The $580 billion stimulus package helped.

In the second quarter, China's economy grew 7.9%, the government said on July 16, in a stunning turnaround for the Asian powerhouse that offered some hope for the rest of the world.

With help from $580 billion in government pump priming, the world's third biggest economy picked up pace again after the global economic crisis dragged growth down to 6.1% in the first quarter.

"The economy is rebounding and the strength of the recovery is increasing," National Bureau Spokesman Li Xiaochao said.

China's gross domestic product grew by 7.1% in the first half of 2009 compared with the same period a year earlier, according to the bureau. This put China back on track to achieve its goal of 8% growth for the year, despite the financial crisis hitting its crucial export sector particularly hard.

Analysts said the rebound in China would offer a boost of confidence for the global economy as it struggles out of the worst economic crisis since the Great Depression of the 1930s. "China is the first big country to have made a strong comeback, so its rebound will definitely offer a stabilizing signal for the world economy," said He Jun, a Beijing-based analyst with the Anbound Consulting research group.

However, He and other analysts cautioned that immediate and direct benefits would be limited to countries that import heavily into China, chiefly resource-rich exporters and neighbouring nations in Asia.

Before the global economic crisis struck, China experienced double-digit annual growth from 2003 to 2007, and again for the first two quarters of last year. To fight the downturn, the government began implementing a four-trillion-yuan (US$580 billion) stimulus package from November last year. Li described the impact of the package as "remarkable", but he also warned pitfalls lay ahead amid concerns of bubbles in real estate and other key sectors. "There are many difficulties and challenges existing in the current national economic performance. The base for recovery is still weak. The momentum for picking up is unstable," he said.

Economists also warned that China's rebound was unbalanced, with the export sector still struggling while massive bank lending had fuelled the potential for asset price bubbles and inflation. "Although private sector investment has picked up, growth still relies heavily on the central governments expansionary policies," said Lu Zhengwei, a Shanghai-based economist with the Industrial Bank. China's exports dropped 21.4% year-on-year in June, the government said last week, the eighth straight monthly decline.

Nevertheless, Lu and other analysts said China's economy would likely grow by around 8% in 2009, in line with the government's target. The figure is generally seen as the minimum growth needed to create enough jobs and prevent major social unrest in the nation of 1.3 billion people.

Industrial output, which illustrates activity in the nation's millions of factories and workshops, expanded by 9.1% in the second quarter of 2009 from a year earlier, the bureau said. In June, industrial output increased by 10.7%, and by 7% for the first half of 2009.

China's urban fixed asset investments, a measure of government spending on infrastructure, rose 33.6% in the first half of 2009 compared with the same period a year earlier, the statistics bureau said. Investments in urban fixed assets increased by 35.3% in June year-on-year.

And the consumer price index, the main gauge of inflation, fell 1.7% in June compared with the same month a year earlier, a further decline from May's drop of 1.4%.

Copyright Agence France-Presse, 2009

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