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China's economic growth holds steady at 6.9 percent in second quarter

China's economy grew faster than expected in the second quarter as industrial output and consumption picked up and investment remained strong, though analysts expect slower growth over the rest of the year as policymakers seek to reduce financial risk.

The economy grew 6.9 percent in the second quarter from a year earlier, the same rate as the first quarter, the National Bureau of Statistics said on Monday.

The pace was slightly higher than previous market consensus of 6.8 percent and well above the government's annual target of around 6.5 percent.

"The national economy performed within an appropriate range with more visible good momentum," the NBS said in a statement.

Strength in retail sale and industrial output data helped offset a weak start for China stocks, which may have been linked to talk of tighter financial regulations.

Growth in China's economy this year has beaten expectations as exports recover and property construction remains strong, though many analysts expect the world's second-largest economy to lose steam later in the year as policy measures to rein in red-hot housing prices and a rapid build-up in debt take a greater toll on growth.

"Overall, the economy continued to show steady progress in the first half...but international instability and uncertainties are still relatively large, and the domestic long-term buildup of structural imbalances remains," the statistics bureau said.

China also reported January to June fixed asset investment rising 8.6 percent on year (topping a Reuters poll of 8.5 percent growth) while property investment rose 8.5 percent in the same period.

Retail sales meanwhile rose 11.0 percent in June from a year ago, better than Reuters' forecast of 10.6 percent.

Beijing has set a growth target of around 6.5 percent for 2017, a tad lower from 6.7 percent in 2016, which was the country's lowest rate in 26 years.

With two quarters of GDP expansion at 6.9 percent against a lower full-year target, the Chinese government will now have greater tolerance of slower growth in the second half of the year, said Aidan Yao, emerging Asia economist at AXA Investment Managers.
"What's really driving the deceleration expectation of ours are government policies," said Yao.

He cited tightening policies in the property market and the government's deleveraging campaign which may affect the second half of the year, he added.

"(The new data) is encouraging for global growth as well because China is the second largest economy on the planet," said Craig James, chief economist at Commonwealth Securities in Sydney.

"Based on this data, there is no need for easing and no need really for tightening either because inflationary pressures are very much contained. So I think the People's Bank of China just continues to be watchful."

The PBOC shifted to a modest tightening bias at the start of this year, guiding market interest rates higher during the first quarter, including immediately after the US Federal Reserve raised rates in March.

But the central bank injected substantial liquidity last month to help avoid an end-quarter cash crunch as Beijing tightened regulations to force banks to deleverage.

Over the weekend, President Xi Jinping attended the National Financial Work Conference - an important policy making event, where there was a focus on managing financial risks.

The conference led to the announcement that financial regulation would be intensified and centralized, with a commission for financial stability established and the PBOC taking on a stronger role managing systemic risks in the country's financial markets. Debt reduction will also become an important consideration in monetary policy.


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