Slowing China GDP growth may prompt more stimulus

China's is expected to post its weakest growth since the global financial crisis on Wednesday, which together with a stock market rout raises pressure on authorities to do more to stir the economy after a run of
stimulus steps has had little impact.

Data confirming China lost more momentum in the June quarter would do little to reassure investors reeling from a sharp plunge in shares over the past month, and analysts are wary on China's outlook, given a weak property market, erratic global demand and fears of more losses in its wild stock market.

Data on Wednesday is expected to show the economy expanded 6.9 percent in the April-June quarter, down from 7 percent in the first quarter and the weakest for the world's second-largest economy since early 2009, when it tumbled to 6.6 percent.

A massive stimulus package pulled China out of the slump then, but at a cost of saddling local governments with a mountain of debt that is now a major economic risk and a limit on what the government can do to spark activity.

"We have yet to see any signs of stabilisation or recovery, but expect growth to improve slightly in the second half due to policy measures," said Xu Gao, chief economist at Everbright Securities in Beijing.

"Investment needs to be quickened. Monetary policy is likely to stay loose, seeking to channel more credit into the real economy, because low short-term interest rates have limited impact on the real economy but may fuel stock market bubbles."

Before the stocks fell sharply in June, they had more than doubled in a year, fuelled by cheap credit.

FEW SURPRISES

Generally markets do not expect much surprise from China's GDP numbers. The March quarter was the 15th straight quarter where the number matched or was very close to the market consensus, as economists have molded forecasts to anticipate the official line. 

The highest forecast in the poll was 7.4 percent from Julian Evans-Pritchard at Capital Economics, who said he expected the financial sector, propelled by surging stock trading volume, to support growth.

Evans-Pritchard stressed that his estimate is just for the official figure.

"I think the real actual growth is probably quite a bit lower, probably somewhere between 5 and 6 percent," he said.

The government has a target to reshape the economy to be more driven by domestic demand, and said the reform process would deliver slower but more sustainable growth.

With the economy hit by a property downturn, factory overcapacity and high levels of local debt, the government expects growth to slow to around 7 percent this year - the weakest annual expansion in a quarter of a century.

MONTHLY DATA

A raft of monthly indicators will be released with the GDP data, and analysts will be looking for signs that momentum is still fading or that the economy may be stabilising. 

There was some encouragement from better-than-expected bank credit and trade figures, fanning hopes that the economy may start levelling out into the second half.

Banks made 1.28 trillion yuan ($206 billion) in new loans in June, beating forecasts, while broad money supply growth quickened, data showed on Tuesday, a day after data showed exports rising and the fall in imports not as severe as forecast.

Factory output is forecast to have risen 6 percent in the year to June, holding near its weakest since the global financial crisis and consistent with surveys showing muted manufacturing activity.

Growth in fixed-asset investment, a driver of economic growth, is forecast to have slowed to 11.2 percent in the first six months of the year, the weakest pace since 2000.

Property prices and sales have also shown some recent improvement, at least in big cities, but investment remains weak.