GLOBAL markets rallied on growth figures from China that show the economy is on track for a soft landing, despite the economic powerhouse posting growth below the 8 per cent mark for the first time since the global economic crisis.
The world's second-largest economy expanded at 7.6 per cent in the June quarter, down from 8.1 per cent in the previous quarter, reflecting declining activity in the country's two main growth engines, its export and construction industries.
The weaker numbers fell within market expectations economists surveyed by Bloomberg had tipped a growth rate of 7.7 per cent but was met with relief by investors, who had feared an even bigger slowdown in China would augur badly for bulk commodities such as iron ore and coal. Reaction to the news was strong and immediate on the Australian market, with the benchmark S&P/ASX 200 Index surging nearly 30 points within minutes of the data being released.
Mining stocks in particular were well-supported. Mirroring the broader market's rise, shares in BHP Billiton and Rio Tinto rose almost 1 per cent within minutes of the data being released.
Similar instant spikes were evident on screens for Atlas Iron, Fortescue Metals Group, copper player Sandfire Resources and most other miners.
Activity in the construction industry declined by 6.9 per cent as a result of the Chinese government's continuing tight control of the once-booming real estate sector. Compared with the same period last year, the sector slowed as much as 16.3 per cent.
HSBC's chief economist for Australia, Paul Bloxham, said the figures were reasonably positive and supported his view that the Chinese economy appeared to be on track for a soft landing.
The weak figures prompted ANZ to lower its annual growth forecast for China's economy from 8.6 per cent to 8.2 per cent. "The second-quarter GDP growth suggests that China's slowdown was more severe than expected," said ANZ China chief economist Liu Li-Gang.
"While we think a rebound is under way, the cyclical rebound will be a moderate one because of the lack of policy conviction and the still uncertain global outlook."
Dr Liu warned that if Beijing did not loosen its tight rein on the real estate sector, it risked a further sharp slowdown in the economy in the second half of the year.
But there are no signs yet that Beijing will do so. Premier Wen Jiabao said last week the government would not waver from its commitment to drive house prices to a more socially acceptable level.
IHS Global Insight's Ren Xianfang compared China's current economic deceleration with that during the Asian financial crisis, albeit at a lower velocity.
But what was more worrying, Mr Ren said, was the Chinese economy's inability to absorb slower growth. While the decline in economic growth was relatively modest on paper, he said, it was "inflicting huge pains" on the ground, through the downward spiral of producer prices, surging manufacturers' inventories, plunging profits, bankruptcies and pay cuts.
Frequently Asked Questions about this Article…
What did China's latest GDP figures show about China’s growth dip?
China's economy expanded 7.6% in the June quarter, down from 8.1% in the previous quarter — the first time growth has fallen below 8% since the global financial crisis, signalling a noticeable slowdown in China GDP growth.
Which sectors drove the slowdown in China’s GDP and why did growth dip below 8%?
The slowdown was driven mainly by weaker export activity and a sharp fall in construction. Construction activity declined 6.9% in the quarter and was down as much as 16.3% compared with the same period last year, reflecting the government's tight control of the real estate sector.
How did global markets and the Australian share market react to the China growth dip?
Markets rallied on the numbers, which were seen as consistent with a possible soft landing. On the Australian market the S&P/ASX 200 jumped nearly 30 points within minutes of the data release as investors reacted to the implications for commodity demand.
Which Australian mining and resources stocks were affected by the China GDP news?
Mining stocks were well supported: BHP Billiton and Rio Tinto rose almost 1% within minutes of the release, and other miners such as Atlas Iron, Fortescue Metals Group and copper player Sandfire Resources also showed instant spikes.
Are economists calling China’s slowdown a soft landing or something more worrying?
Views are mixed but cautiously positive: HSBC's chief economist Paul Bloxham said the figures support the view China appears on track for a soft landing, while other analysts warn the slowdown is more severe than expected and could inflict real pain if policy support is lacking.
Did major banks revise their China growth forecasts after the GDP release?
Yes. ANZ lowered its annual growth forecast for China from 8.6% to 8.2%, saying the second-quarter GDP suggests the slowdown was more severe than expected.
How are China’s real estate controls affecting investors and what risks remain?
Tighter control of the real estate sector has dragged construction activity lower and, according to analysts, could lead to a sharper slowdown if Beijing does not loosen policy. Premier Wen Jiabao has reiterated the government's commitment to cool house prices, and analysts warn the slowdown is already causing falling producer prices, rising inventories, plunging profits, bankruptcies and pay cuts in some areas.
What should everyday investors watch next after the China growth dip?
Investors should monitor upcoming China data on construction and exports, commodity demand (especially iron ore and coal), producer price and corporate profit trends, and any policy signals from Beijing on the real-estate sector — all of which will influence markets and Australian miners referenced in the report.
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