Slower Growth But Better Than Expected in China

The Chinese economy has experienced slower growth but better than expected in the second quarter, which soothes the fears of a hard landing and reinforces the determination of Beijing to fight against stubbornly high inflation.

Driven by domestic demand and strong investment, gross domestic product (GDP) of China rose 9.5% in the second quarter on an annual basis, while economists expected growth of 9.4%.

However, this represents the lowest growth rate since the third quarter of 2009, when the global economy was barely out of the worst recession in 80 years.

But a slowdown was expected and even welcome in China, where inflation reached 6.4% in June, its highest in three years.

The situation “complex and volatile” – between the debt crisis in Europe and slowing U.S. growth – has weighed on exports, explains the Chinese Bureau of Statistics.

But domestic consumption remained strong, contributing to GDP growth in the first half at height of 4.6 percentage points.

Industrial production also increased by 15.1% in June from a year earlier, its largest increase since May 2010, surpassing the expectations of the market which expected an increase of 13.1%.

“These are very good figures,” said Liu Li-Gang, an economist at ANZ in Hong Kong. “This is probably the reason why the central bank raised interest rates last week. They show that they don’t fear a significant slowdown in the economy.”

Chinese Premier Wen Jiabao and the governor of China’s central bank pledged Monday to make the fight against inflation their priority, while avoiding to cause significant fluctuations in economic growth.

According Daokui Li, member of the Monetary Policy Committee of the Chinese central bank, inflation could be around 4.8% over the year.