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China’s Economy Grows 9.5%, Exceeding Economists’ Estimates

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Pork, a Chinese Staple, Rose 57 Percent
A worker pushes pig carcasses at a pork wholesale and distribution center in Shanghai in March. Photographer: Qilai Shen/Bloomberg

July 13 (Bloomberg) -- China’s economy and industrial production expanded more than analysts predicted, indicating the nation is maintaining momentum even after interest-rate increases to cool inflation.

Gross domestic product rose 9.5 percent in the second quarter from a year earlier, the statistics bureau said in Beijing today, after a 9.7 percent gain the previous three months. The median estimate was for a 9.3 percent pace in a Bloomberg News survey of 18 economists. Industrial output advanced 15.1 percent in June, the most since May 2010.

Stocks climbed in China on the signs that demand is holding up after the central bank boosted lending rates five times since mid-October and lifted bank reserve requirements to a record. Premier Wen Jiabao said yesterday that stabilizing prices remains the top priority, after food costs soared more than 14 percent in June.

The government “can remain focused on inflation, given that growth was pretty strong,” said Dariusz Kowalczyk, a senior strategist at Credit Agricole CIB in Hong Kong. The data “will encourage policy makers to maintain tight policy settings,” he said.

The Shanghai Composite Index of shares advanced 0.8 percent to 2,775.62 as of 11:01 a.m. local time.

The economy expanded 2.2 in the second quarter from the first three months of the year, the statistics bureau said, picking up from 2.1 percent in January to March.

Europe's Crisis

Wen’s policy options are complicated by a faltering U.S. economy and Europe’s spreading debt crisis threatening export demand. Moody’s Investors Service yesterday cut Ireland’s debt rating to junk and soaring bond yields have signaled that the contagion could spread to Italy.

Fixed-asset investment, excluding rural households, rose 25.6 percent in the first half from a year earlier, today’s report showed. Retail sales expanded 17.7 percent last month from a year before exceeding a median analyst estimate of 17 percent.

The expansion in industrial output compared with the median 13.1 percent gain in a Bloomberg survey.

While the global economy is increasingly dependent on China’s demand as the U.S. labor market deteriorates, investors are concerned that tightening measures will choke off growth. The Shanghai Composite Index declined 10 percent from its April high through yesterday, while yuan forwards indicate reduced expectations for gains in the currency against the dollar.

Inflation Target

Signs of a slowdown have spanned weakness in imports, a manufacturing index falling in June to the lowest level since February 2009, and carmaker General Motors Co. saying that sales may be at the low end of a forecast. At the same time, lending exceeded forecasts last month and growth in M2, the broadest measure of money supply, rebounded.

Inflation has breached the government’s 4 percent ceiling every month this year, with consumer prices rising 6.4 percent in June from a year earlier, the most in three years. Pork, a Chinese staple, rose 57 percent and accounted for more than a fifth of June’s overall inflation rate.

The People’s Bank of China has raised the one-year lending rate to 6.56 percent and the one-year deposit rate to 3.5 percent, announcing the latest increases on July 6. The nation’s biggest banks are required to set aside 21.5 percent of deposits as reserves, up from 17 percent in November, locking up cash that could fuel inflation.

Ding Shuang, a senior economist at Citigroup Inc. in Hong Kong who previously worked at China’s central bank, said last week that he expects inflation to slow after this month. UBS AG, sees price gains remaining above 6 percent in July before moderating toward 4 percent at the end of the year.

To contact Bloomberg News staff on this story: Victoria Ruan in Beijing at vruan1@bloomberg.net; Zheng Lifei in Beijing at lzheng32@bloomberg.net.

To contact the editor responsible for this story: Paul Panckhurst in Hong Kong at ppanckhurst@bloomberg.net

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