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GDP grows 7.9%, but warnings about rebound's strength

CHINA'S gross domestic product expanded 7.9 percent year-on-year in the second quarter, rebounding from growth of 6.1 percent in the first three months and signalling the world's third largest economy has bottomed out from the global recession.

However, the foundation for the rebound was not that solid and China's economy was still facing many difficulties and challenges given the uncertainties in the global market, said Li Xiaochao, National Bureau of Statistics spokesman, today in Beijing.

China will continue to carry out a "proactive fiscal policy and relatively easy monetary policy" to strengthen the growth, Li said during a televised press conference.

"China's economy is heading towards positive growth while the rising industrial production, domestic spending and improved people's livelihood offset slumps in foreign sales," Li said.

"China will continue to implement the stimulus package to counter the global financial crisis and keep policies stable."

China's improved economic growth in the second quarter helped to send the GDP in the first half to 13.98 trillion yuan (US$2.04 trillion), rising 7.1 percent from a year earlier.

China's agricultural industry grew 3.8 percent to 1.2 trillion yuan in the first half. The manufacturing and service sectors expanded 6.6 percent and 8.3 percent respectively to 7 trillion yuan and 5.7 trillion yuan.

The growth rate was in line with market expectations and economists said China had become one of the first major economies to ride out of the global recession.

"China's economy continued to point to gradual stabilization and recovery. As the green shoots in the economy have taken root, we expect it will blossom in the second half of this year," said Wang Qing, a Morgan Stanley economist.

China's industrial output advanced 7 percent in the first six months on an annual basis, with the accelerating pace in June when it gained 10.7 percent bucking the global trend.

Retail sales grew 15 percent from a year earlier in the first six months to 5.87 trillion yuan, up 3.7 percentage points compared with the growth rate in the same period of last year.

Increased production and spending in the domestic market countered the slowdown in trade, which decreased 23.5 percent to US$946.1 billion through June.

While Li said China would stick to the relatively loose policy at the moment, some economists suggested the country might gradually shift to a neutral stance given fast growing loans and ample liquidity in the market.

"With growth recovery clearly under way and bank lending rising dangerously fast, we think the authorities may soon end the phase of 'shock and awe' type of stimulus," said Wang Tao, an economist at UBS AG.

"Given the persistent weak export and global outlook, however, we do not expect any immediate or abrupt shift in macro policy stance."

China's new bank loans soared to 7.37 trillion yuan in the first half, already surpassing the central government's target of at least 5 trillion yuan for this year.

Meanwhile, M2, the broadest measure of money supply, surged at an unexpected record pace of 28.5 percent in June, up from the 25.7 percent increase in May.


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