Economy in China Regains Robust Pace of Growth

Fueled by a massive economic stimulus package and aggressive bank lending, China’s economy grew by 7.9 percent in the second quarter of this year, the government said Thursday, a surprisingly strong showing during the global economic downturn.
The gross domestic product figures, released Thursday by the National Statistics Bureau in Beijing, suggest the country’s stimulus policies are working and that the government will meet the 8 percent growth target it set early in the year, analysts say.
While most other major economies are in recession or struggling with anemic growth, China appears to have turned a corner following a sharp slowdown at the end of last year and the beginning of this year, when the pace of growth in the country was cut in half.
“This is a stunning recovery,” said Andy Rothman, an economist at the brokerage firm CLSA in Shanghai. “And it’s also not just the government money fueling the recovery. The private sector is also recovering, and that’s the key.”
After growing at a torrid pace of nearly 13 percent late in 2007, China’s growth dipped to 6.1 percent in the first quarter of this year, the slowest pace in a decade. Some analysts suspect growth during that period was even slower.
But in recent weeks, analysts say they have begun to see signs of robust growth in the Chinese economy, including strong car and property sales, soaring commodity prices, long lines at ports and huge infrastructure projects.
“Demand for steel has rallied strongly in the last six months,” said Jim Lennon, a London-based steel analyst at Macquarie Securities. “Many Chinese steel producers are now operating at full capacity. The Chinese are the only growth market for steel.”
While many countries may be relying on government-funded stimulus projects, China has turned to its state-owned banks, which have already made more than $1 trillion in loans this year.
“This recovery is much more reliant on bank lending,” said Wang Tao, the chief China economist at UBS Securities. “In the last few months, the bank lending has been massive — beyond anyone’s imagination.”
Analysts say the dynamics of the economy have begun to shift slightly this year, away from the once-booming coastal provinces and toward less developed regions in central and western China.
But some analysts remain skeptical about China’s statistics, questioning whether the government is releasing overly rosy figures and masking serious troubles in the economy.
After dropping sharply in the early part of this year, exports have stabilized. But they are still struggling, analysts say. Analysts also point to weak electricity consumption figures and meager foreign investment as indications that growth may not be as strong as reported in official data.
But many analysts say there are more signs of strength than of weakness, and that record bank lending is filtering through the economy and helping drive growth.
“This is probably the only major economy in the world where manufacturing employment is rising,” said Mr. Rothman of CLSA.
Most analysts are now forecasting strong growth for the second half of this year, at close to 9 percent from a year earlier. But there are risks emerging too.
The government has already warned about wasteful government-spending projects, the possibility that overly aggressive lending could lead to a sharp increase in nonperforming loans and the threat of asset bubbles and inflation.
Property prices are skyrocketing again in some parts of the country.
And Shanghai’s stock market is up nearly 70 percent this year, after a huge drop last year.
Some experts say the stock market has been propped up partly by state-owned companies that are once again speculating on stocks rather than investing in their businesses.
The government and many analysts are also worried about asset price inflation and the possibility that aggressive lending from state-owned banks will result in a raft of nonperforming loans in the coming years.
“There are the two biggest worries for the government,” said Ms. Wang of UBS Securities. “It’s impossible to make so many loans in such a short period and not have problems. Two or three years down the road, nonperforming loans could be a serious problem.”