China’s Economy Shows Strong Growth

In the first six months of this year China’s GDP grew by 7.1% on year-over-year basis as per the latest data released by the National Bureau of Statistics of China yesterday.

Economic growth by quarters:

1st Quarter, 2009 : 6.1%
2nd Quarter, 2009 : 7.9%

The main reason for the strong growth was the government’s massive 4-trillion-Yuan ($586 billion) stimulus program. In a statement announcing the latest figures, the Bureau said:

all regions and departments effectively implemented the policies and measures set by the central government on fighting against the global financial crisis and promoting the sound and fast growth of national economy, overcame the difficulties in the progress, the national economy stabilized to recovery with increasing positive changes

Last year when the stimulus program was announced there were many skeptics in the West who questioned the strategy, the validity of the huge amount announced, etc.However the stimulus program primarily focused on infrastructure is working and the government is also stimulating domestic consumption by offering subsidies for consumer goods such as washing machines to folks in rural areas.  The idea behind these moves is to make the Chinese economy less dependent on foreign exports and more dependent on local demand.

Foreign trade is still down. Exports in the first six months fell by 21.8%  and imports was down 25.4%.Unlike many other countries, China has a trade surplus. It stood at US $96.9B.

A few other key takeways from the stat report  include:

  • The income of urban and rural residents continued to grow with large increase in transfer income
  • The industrial production picked up quickly, and the decreasing rate of profits made by industrial enterprises slowed down
  • Investment in fixed assets enjoyed fast growth with improved investment structure
  • Sales on domestic markets continued to accelerate, with higher growth rate at or below county level than that in cities
  • The money supply grew rapidly with sharp increase in loans of financial institutions

Related to the last point, the  growth of money supply (M2) was 28.5% on a year-over-year basis for the first two quarters as financial institutions increased lending due to the stimulus program.

Finally the report added a note of caution saying “The base for recovery is still infirm, the momentum for picking up is unstable, the recovery pattern is unbalanced, and thus there are still uncertain and volatile factors in the recovering progress.”

Related ETF :

iShares FTSE/Xinhua China 25 Index Fund  (FXI)

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