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China's economy posts stronger than expected growth

Workers move piping at a construction site in Beijing.


The Chinese economy appears headed for a soft landing but economists still believe the country's central bank will move forcefully to keep inflation in check.

Although down slightly from the 9.7-per-cent pace in the first three months of the year, the Chinese economy expanded at a stronger-than-expected annual rate of 9.5 per cent in the second quarter, according to official data released Wednesday.

Industrial production in June jumped by 15.1 per cent year-over-year to its strongest reading since April, 2010, while retail sales grew at the fastest pace of growth since January, at 17.7 per cent year-over-year.

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Analysts expect several more rounds of policy tightening in China to put the economy on a sustainable track and contain inflation, which hit a three-year high of 6.4 per cent in June.

That was "far above" the government's official 4-per-cent target, Peter Buchanan, senior economist at CIBC World Markets, said in a research note.

"China's Premier Wen Jiabao was either prescient or well-informed, when he suggested earlier in the week that policy would remain squarely focused on containing inflation for now," he wrote. "Providing some rationale for that orientation, the latest real side indicators show that while the economy has lost some momentum recently, it is still growing faster than many observers had expected."

While the United States and Europe try to shore up sluggish growth, Beijing wants to steer its rapid expansion to a more manageable level.

"The strength of the economy will make them confident and well prepared to impose more tightening measures if needed," said Frances Cheung, a senior strategist for Credit Agricole CIB in Hong Kong. "Any slowdown is likely to be fairly gradual and China can manage a soft landing rather than a hard landing."

Growth in China continues to be heavily reliant on investment, which means that consumption, already accounting for an "exceptionally low level of spending," continued to fall as a share of gross domestic product, Mark Williams, senior China economist at Capital Economics in London, said in a note.

"With the trade surplus rebounding, growth in China is being achieved partly at the expense of growth in the rest of the world," he said. "This pattern of growth is not sustainable, as the government has acknowledged. The longer investment-led growth continues, the greater the risk that capital is misallocated ... and that overcapacity becomes a serious issue."

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With a file from AP.

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