Steady growth in second quarter but challenges ahead
China's overall economic growth held steady at 6.7 percent year-on-year in the second quarter, as better exports and steady infrastructure investment offset downward pressures from increasingly weak corporate investment and the spurt in real estate construction started to lose momentum.
However, overall growth is likely to be challenged in the second half of the year because real estate construction is likely to slow down further and the prospects for exports and corporate investment remain weak. Consequently, achieving the government's overly ambitious GDP growth targets will rely on continued stimulus. With the limits to credit-based stimulus becoming more obvious, the government may have to resort to a greater reliance on fiscal policy.
A look at the breakdown shows that growth in industry was a bit faster than in the first quarter and the expansion of services somewhat slower. Meanwhile, the pace of deflation in industry eased substantially, so the increase in the overall GDP deflator picked up significantly, allowing for nominal GDP growth to rise to 8.4 percent year-on-year, the fastest growth in two years.