China grows faster amid worries

Analysts say the stimulus package seems to be working

China's economy grew at an annual rate of 7.9% between April and June, up from 6.1% in the first quarter, thanks to the government's big stimulus package.

The country's quickening economic expansion comes as most nations in the West continue to experience recession.

Beijing now expects China to achieve 8% growth for 2009 as a whole, which compares with a predicted contraction of between 1% and 1.5% in the US.

However, the Chinese government warned that some economic challenges remain.

'Numerous challenges'

The BBC's correspondent in Shanghai, Chris Hogg, said China's latest economic growth was largely due to the government's 4 trillion yuan ($585bn, £390bn) economic stimulus plan unveiled last November.

Yet Chinese officials said the increased economic expansion between April and June could not obscure continuing problems.

ANALYSIS Chris Hogg, BBC Shanghai correspondent China's economy is recovering earlier than many had expected. That's largely due to the government's massive economic stimulus package unveiled last November, but the private sector is doing its part too. China's state controlled banks have lent huge amounts of money to the country's state owned and private sector businesses. Companies have used the cash to try to avoid shedding jobs and to invest in new equipment. The many new government infrastructure projects have provided employment for many of the migrant workers who have been laid off - mainly in the export sector. The slowdown elsewhere in the world means exporters are still suffering, but the rest of China's economy is in much better shape. Optimistic Chinese signs Why China bankrolls the US Are China's savers key?

"The difficulties and challenges in the current economic development are still numerous," said National Bureau of Statistics (NBS) spokesman Li Xiaochao at a news conference.

"The basis of the rebound of the people's economy is not stable," he said.

In a statement distributed ahead of a news conference, the NBS said: "The base for recovery is still weak. Growth momentum is unstable. The recovery pattern is unbalanced and thus there are still uncertain and volatile factors in the recovery process."

It said that urban per capita incomes were up 11.2% from a year earlier, and that real rural per capita incomes were up 8.1%.

Meanwhile, China's consumer price index fell 1.7% in June compared with the same month a year earlier, the fifth consecutive monthly decline.

Last week, the government said that exports in June were down 21.4% compared with a year earlier.

Public private progress

Our correspondent said that while the public sector was leading the speed up in the rate of economic expansion, the private sector was also doing its part.
China's state controlled banks have lent huge amounts of money to the country's state owned and private sector businesses.

Companies have used the cash to try to avoid shedding jobs and to invest in new equipment.

Meanwhile, the many new government infrastructure projects have provided employment for many of the migrant workers who have been laid off - mainly in the export sector, our correspondent added.

Analysts broadly welcomed China's latest economic data.

"It's very encouraging: the 8% growth target [for the year] is in sight," said Daniel Soh, an economist at Forecast in Singapore.

"It's by now clear that the fiscal stimulus package has offset the contraction in export activity."

However, Wang Tao, head of China economic research at bank UBS, told the BBC that the increase in the country's economic growth rate "may or may not be sustainable".

She pointed to the fact that exports remained weak due to the global recession.

Ms Wang added that despite China's continuing fast economic growth, it could not be relied upon to pull the whole world out of recession. She said this was because other than raw materials, China was not a major importer.

Growing factory output

Industrial output - a measure of activity in the nation's factories and workshops - grew by more than 10% year on year in June.

Urban fixed asset investment - a measure of government spending on infrastructure - rose by more than 35% over the same period.

China's economic growth in the first quarter of 6.1%, had been the weakest growth since quarterly records began in 1992.

The country experienced double-digit growth from 2003 to 2007, and recorded 9% growth in 2008.

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