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China's GDP grows by 7%


Post Date: 17 Jul 2015    Viewed: 578

Observers are still sorting out what if any effect China's stock market selloff had on the overall economy, as the Chinese government announced Wednesday that the nation's gross domestic product (GDP) grew by 7 percent in the second quarter, bolstered by strength in the service sector.

The National Bureau of Statistics said the service sector made up 49.5 percent of total GDP - 2.1 percentage points more than in the same period last year - compared with the industrial sector's 43.7 percent, with agriculture accounting for the rest.

Despite the relatively strong indicator, China's Shanghai and Shenzhen A Share indices fell 3.01 percent and 4.22 percent respectively, on Wednesday. The market's tumble, which began last month, prompted extraordinary support measures from the government and the People's Bank of China (PBOC), the country's central bank.

Darrell Duffie, a professor of finance at Stanford University in Palo Alto, California, said the GDP report would seem to allay fears that China's economy may not be able to weather the fallout from the stock market downturn.

"However, due to lags in economic responses, the performance data for (the) next quarter will be far more revealing of the degree to which the selloff will have an adverse impact," he said.

Meg Lundsager, public policy fellow at the Wilson Center and a former US executive director at the International Monetary Fund, said it's difficult to predict the impact of the stock market on the economy.

"The 7 percent number is encouraging because it is growth in the range that most (now) talk about as an informal threshold for things going well and because it is somewhat better than what was generally expected," said Jacques deLisle, a law professor and director of the Center for East Asian Studies at the University of Pennsylvania in Philadelphia.

Even before the stock market turbulence the PBOC and the government took steps to counter an economic slowdown that seemed poised to exceed original targets. The central bank has trimmed interest rates three times since last November to spur domestic demand while the government increased infrastructure spending and provided additional tax breaks.

"From a longer term perspective, the concern is that growth is being maintained through quite extensive state intervention in the economy (as occurred in 2008 as well)," said deLisle.

In the second half of the year, Lundsager expects the Chinese government to focus on supporting domestic growth by financing investment and maintaining an accommodative monetary policy.

"The challenge will be to maintain financial market confidence and stability, while reducing the recent market interventions and returning to the path of financial sector deepening and liberalization," she said. 


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