Domestic Consumption Still Not There In China Despite Growth

China posted better-than-expected second-quarter gross domestic product (GDP) figures, but economists say there’s little evidence of progress in rebalancing its economic growth model towards domestic consumption.

GDP growth picked up to 7.5 percent on year in the June-April quarter, from 7.4 percent in the previous three months, as Beijing’s targeted stimulus measures began to pay off.

“The recovery is clear, but this recovery can’t be seen at the consumer level, it’s driven by infrastructure spending that the government has planned. That’s troubling,” Dariusz Kowalczyk, senior economist/strategist, Asia ex-Japan at Credit Agricole told CNBC on Wednesday.

In April, the government rolled out a mini stimulus package designed to boost spending on infrastructure including railways and social housing. As a result, fixed asset investment climbed 17.3 percent in the first six months of 2014 compared with a year earlier, while retail sales rose just 12.4 percent in June from a year ago, in line with analysts’ predictions.

“The gap between investment and consumption remains very wide. Retail sales need to pick up to a pace that equals fixed asset investment, otherwise growth will continue to be imbalanced,” he said.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza