China’s Economic Growth Edges Higher

China reported that economic growth picked up in the second quarter of 2014, as the government’s stimulus moves began to make an impact.

The world’s second-largest economy expanded 7.5% from a year ago in Q214, edging up from 7.4% growth in Q1. Separate data also showed that Chinese retail sales were 12.4% higher than a year ago last month, while factory output rose by 9.2% year-on-year (YoY) and fixed asset investment increased by 17.3% in the first six months of 2014.

The better data follows a series of measures introduced in recent months to bolster Chinese economic growth, after the annual rate slowed after decades of double-digit figures. In response to the slowdown, due in part to a decline in demand for its exports from key markets, China has attempted to boost domestic consumption to sustain its expansion and also to rebalance its growth model.

Last month, the People’s Bank of China (PBOC) announced a reduction in the reserve requirement ratio (RRR) – the amount of cash banks are required to keep in reserve – for those engaged in lending to agriculture-related businesses and small companies to make more cash available for lending. The PBOC added that it would also encourage banks to lend more to exporters to boost shipments.

In April, the government announced tax reductions for small firms and plans to accelerate the construction of railway lines across the country. Other planned infrastructure projects include railways, roads and airports along the Yangtze River, which connects China’s less developed inland provinces to Shanghai.

However, recent data has not all been as positive, with signs of waning enthusiasm from foreign investors as China’s labour costs rise and the economy slows. Foreign direct investment for H114 rose by only 2.2% from a year earlier to US$63.33bn, compared with a 4.7% YoY increase for H113.

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