Pick up in growth reduces need for further policy easing

Wednesday's data on GDP growth beat expectations and growth in industry picked up again recently on a monthly basis, suggesting that the policy easing measures taken since late last year are starting to have an effect.

GDP growth in the second quarter was held back by continued weakness in investment, while export momentum slowed but private consumption held up better. In the housing market, sales growth remained brisk in June. However, amid still high inventories of unsold housing, housing construction is not yet benefiting from the better sales growth. On the other hand, infrastructure investment benefits from its key role in the government's policy efforts to support growth.

But the downward pressures on growth stemming from the weakness in industry amidst the property downturn have been dampened by the robust expansion of the service sector. Value added in the tertiary sector significantly outgrew that in the secondary sector in the first half of 2015, especially in nominal terms, due to large differences in pricing power. With employment in industry not growing anymore, job creation in the expanding service sector is critical to support urban job growth and the migration of workers from the rural areas.