Xiaoyi Shao and Kevin Yao Beijing

China’s economic growth picked up slightly in the second quarter as a burst of government stimulus paid dividends, but analysts said Beijing would probably need to offer more support to meet its annual growth target as the property market slowed.

Analysts remain cautious about the economic outlook, noting that the pick-up in growth was driven more by government support than a natural recovery in momentum, as evidenced by a surprising surge in lending by state-controlled banks last month.

Many believe the slowing property sector poses the biggest risk to the economy in the second half of the year, and thus could dictate whether Beijing sticks to a steady roll-out of modest stimulus steps or considers more aggressive action such as interest rate cuts.

“The recovery is quite dependent on government support. So I think the government can choose either to tolerate lower growth or to do more stimulus to achieve their growth target,” Chang Jian at Barclays Capital in Hong Kong said.

“The biggest risk [to the economy] for the second half is a property correction and related financial risks,” she said.

The economy grew 7.5 percent in April to June from a year earlier, the statistics bureau said yesterday, just ahead of a median forecast of 7.4 percent in a poll.

A raft of support measures helped lift the pace from an 18-month low of 7.4 percent in the first quarter, with infrastructure investment and related manufacturing offsetting the drag from weak exports and the cooling property market.

Stimulus measures have included sharply higher bank lending, reducing the amount of cash some banks have to hold as reserves, instructing regional governments to quicken their spending and hastening the construction of railways and public housing.

Though officials continue to describe such steps as “fine-tuning”, Beijing has been steadily broadening the scope and depth of its assistance, as indicated by last month’s lending surge and reported moves by local governments to ease home buying restrictions.

The property sector continues to drag on growth, even though calculations showed home sales by value picked up sharply last month as state-controlled banks made credit more easily available.

A central bank official was quoted as saying this week that Chinese banks increased lending to the property sector by 18 percent in the first six months of this year compared with the comparable period a year ago, in what he said was a “forceful” show of support.

In spite of such moves, however, growth in China’s real estate investment slowed in the first half of the year while sales and new construction slipped. – Reuters