Hong Kong - China’s frenzied stock market boom - which soured in the second half of June - helped drive a surge in financial sector growth that underpinned the economy’s better- than-expected gross domestic product result.
Financial services surged 17.4 percent in the first six months from a year earlier, according to China’s statistics authority, as exchanges and brokerages registered surging revenue amid record trading volume. It was the stand out industry as real estate languished and agriculture grew at about half the overall economy’s pace of 7 percent.
The data underscores the fragility of China’s economy as a rout that wiped out almost $4 trillion in market value may shake confidence in the sector. That could dent hopes for a pick up in the second half and mean further stimulus will be needed if Premier Li Keqiang is to meet his 2015 economic expansion target of about 7 percent.
“Even if the stock market stabilises, growth of financial services won’t be as fast as it was in the first half,” said Wang Tao, chief China economist at UBS Group in Hong Kong. “The government needs to further boost infrastructure investment.”
She estimates, if the financial sector’s value added went back to pre-boom levels, its second-half contribution to GDP growth will be about 0.5 percentage point lower than it was in the first.
Manufacturing rose 6 percent from a year earlier in the first six months, while construction expanded 7 percent, the data breakdown showed. The services sector expanded 8.4 percent in the first half and accounts for 49.5 percent of GDP.
Brokerage Boom
Exchanges, brokers and banks were the first to benefit from the spike in equity trading. The nation’s brokers gained more profit in the first half of this year than all of 2014, according to statements on the Securities Association of China’s website.
The sector also supported employment, as labor demand from finance rose 17.5 percent in the three months ending June from a year earlier, according to the Ministry of Human Resources and Social Security. That compares to a deteriorating nationwide picture - the overall ratio of jobs available to job seekers dropped to 1.06 last quarter from 1.11 a year earlier.
Ding Shuang, chief China economist at Standard Chartered in Hong Kong, said real activity growth excluding the extraordinary financial transactions likely decelerated to 6.2 percent in the second quarter from a year earlier, down from 6.5 percent in the first quarter. The economy registered a 7 percent growth pace in both periods.
Growth Drag
“Headline GDP growth may suffer from a normalisation in the equity market,” Ding wrote in a note. “We expect policy easing to be measured and targeted in the second half, given signs of growth stabilisation and a stable labor market.”
China’s benchmark Shanghai Composite Index surged 150 percent in the 12 months to a June 12 peak, before plunging as much as 32 percent. The index rose 0.5 percent Thursday.
On the way up, millions were lured to the stock market, with the number of investors surpassing the number of Communist Party Members. When the rout struck, the government stepped in with a range of measures - including suspending IPOs, relaxing margin rules and ordering state-backed bodies to buy shares.
“To the extent that growth was supported by financial sector gains from the stock market, it won’t be sustained without further stimulus,” Bloomberg economist Tom Orlik wrote in a note after the quarterly GDP release on Wednesday.
Bloomberg