China’s Economy Rebounds

China’s GDP growth quickens to 7.9% as record lending and surging investment countered a slump in exports., Bloomberg 7/15/2009 11:31:49 PM

Gross domestic product expanded 7.9 percent in the second quarter from a year earlier after a 6.1 percent gain in the previous three months, the statistics bureau said in Beijing today.

China’s 4 trillion yuan ($585 billion) stimulus package and the scrapping of lending restrictions for banks triggered the revival in the world’s third-largest economy. The nation risks bubbles in stocks and property after money supply grew by a record and inflows of cash pushed foreign-exchange reserves to more than $2 trillion.

The foundation of China’s recovery is not yet firm” after the economy stabilized in the first half and the government will stick to its moderately loose” monetary policy and proactive” fiscal stance, statistics bureau spokesman Li Xiaochao said.

The central bank is using bill sales to drain cash from the financial system and push up money-market rates, seeking to tighten monetary policy without choking off a recovery. One-year lending rates and banks’ reserve requirements haven’t changed this year after reductions in 2008 to counter the global crisis.

The rebound in GDP snaps a two-year run of progressively slower growth. Investment in factories, property and roads surged 35.3 percent in June from a year earlier, quicker than the 33.6 percent pace for the first half as a whole, the statistics bureau said.

Industrial production increased 10.7 percent in June from a year earlier after an 8.9 percent gain in May, the statistics bureau said. Retail sales climbed 15 percent.

China was the biggest contributor to global growth last year, accounting for a third of the expansion, according to IMF data, which uses purchasing power parity calculations to account for differences in exchange rates.

China’s raised interest rates and added loan restrictions from 2007 to cool the economy and the property market. The slowdown deepened when the global financial crisis hit.

China’s Economy Rebounds