China booms on

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China second quarter GDP increased by 9.5% in real term over the same period a year ago, beating estimates of 9.3%, and slowing only slightly from 9.7% of the first quarter. For the first half of the year, GDP increased by 9.6% over the first half of last year. On a quarter-on-quarter basis, however, GDP increased by 2.2% in real terms, which is even faster than the 2.1% growth in the first quarter. So, despite a slowdown being more evident, growth is oddly accelerating on a quarter-on-quarter basis (note that this is only the second time for National Statistics Bureau to publish quarter-on-quarter data).

In nominal terms, GDP grew 18.9% in the second quarter.


The oddity extends also to growth in industrial production which rebounded in June from 13.3% to 15.1% even though the PMI hit a new low. The market was expecting 13.1% growth.

The growth of retail sales also rebounded slightly from 16.9% to 17.7%. The market was expecting 17.0% growth.

China ran a trade deficit in the first quarter, so the rebound into surplus in the second quarter should be helping.

That said, while the market is taking these number at face value and seeing them as evidence that a soft landing is more likely, this data strengthens the case that the economy has not slowed much. Looking at the second quarter’s quarter-on-quarter GDP growth, it was actually accelerating, although no one knows exactly why (and there is a huge inconsistency between real GDP growth and nominal GDP). And a slowdown from 9.7% to 9.5% yoy growth is simply not that significant.

As such, I suspect that these figures make the case for easing monetary policy in the second half of the year much weaker than previously thought, given that inflation is still out of control.