GLOBAL markets rallied on growth figures from China that showed the economy was on track for a soft landing, despite the economic powerhouse posting growth below the 8 per cent market 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, due to 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 like iron ore and coal.
Reaction to the news was strong and immediate on the Australian market, with the benchmark ASX 200 index surging nearly 30 points within minutes of the data being released. Mining stocks in particular were well supported by investors.
Mirroring the broader market's rise, shares in BHP Billiton and Rio Tinto rose by almost 1 per cent within minutes of the data being released. While not all those gains were maintained, both finished the day better off as a result of the data.
Similar instant rises were evident for Atlas Iron, Fortescue Metals Group, copper play Sandfire Resources and most other miners. The ASX 200 closed 14 points, or 0.4 per cent, higher at 4082.2 yesterday, snapping six days of falls.
Activity in construction industry declined by 6.9 per cent as a result of the continuing tight control of the once-booming real estate sector by the Chinese government. Compared to the same period last year, the sector slowed by 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.
"Fixed-asset investment numbers in the Chinese GDP figure held up rather well and they were up 20 per cent over the year and I think it is still a reasonably positive sign for commodity producers," he said.
The weak figures prompted ANZ Bank 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," ANZ China's chief economist, Liu Li-gang, said. "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 will risk further sharp slowdown in the economy in the second half of the year.
But there are no signs yet that Beijing will do so. The Premier, Wen Jiabao, said last week that the government would not waver from its commitment to drive house prices to a more socially acceptable level.
Frequently Asked Questions about this Article…
What China GDP news sparked the global market rally and why should investors care?
China’s economy grew 7.6% in the June quarter, down from 8.1% the previous quarter but broadly in line with market expectations. Investors cheered because the weaker-than-before but not disastrous reading suggested China may be on track for a ‘soft landing’ rather than a sharp slowdown, which supports global commodity demand and risk assets.
How did the ASX 200 and Australian mining stocks respond to the China growth data?
The ASX 200 jumped almost 30 points within minutes of the China data and closed 14 points (0.4%) higher at 4,082.2, snapping six days of falls. Major miners such as BHP Billiton and Rio Tinto rose almost 1% immediately, and other miners including Atlas Iron, Fortescue Metals Group and Sandfire Resources also saw instant gains.
Does China’s slower growth automatically mean lower prices for iron ore and coal?
Not necessarily. While exports and construction slowed, the GDP report showed some positive signs for commodity producers—HSBC noted fixed‑asset investment was up about 20% year‑on‑year—so markets viewed the slowdown as manageable rather than catastrophic for bulk commodities like iron ore and coal.
How big is the slowdown in China’s construction sector and what does it mean for investors?
Construction activity declined 6.9% in the quarter and was down about 16.3% compared with the same period last year. For investors, that means companies exposed to Chinese property and construction demand face headwinds unless policy settings change to support the sector.
Have economists or banks updated their China growth forecasts after the data?
Yes. Economists surveyed by Bloomberg had expected 7.7% growth, and ANZ lowered its annual growth forecast for China from 8.6% to 8.2%, with ANZ’s chief China economist saying the slowdown appeared more severe than expected.
Should everyday investors chase the immediate post‑data rallies in mining stocks?
Caution is wise. The article notes some miners rallied quickly but not all gains were maintained by the close. Short‑term spikes can be volatile, so consider your time horizon, diversification and whether the rally fits your investment plan before buying on momentum.
What is the risk that China’s property controls will cause a sharper slowdown later in the year?
Analysts in the article warned that if Beijing doesn’t ease its tight controls on the real‑estate sector, the economy could slow more sharply in the second half of the year. There were no signs at the time that Beijing planned to loosen policy—Premier Wen Jiabao reiterated commitment to driving house prices to a more socially acceptable level.
How should investors interpret mixed signals in China data—weak construction but strong investment?
Mixed data means the picture is nuanced: declining construction and exports are weaknesses, but solid fixed‑asset investment offers support for commodity demand. For investors, that suggests selective opportunities—companies tied to infrastructure or resilient commodity demand may fare better than those exposed mainly to property and exports.
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