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Fears despite Chinese economy boost

China's economic growth picked up slightly in the second quarter as a burst of government stimulus paid dividends, but analysts said Beijing will likely need to offer more support to meet its annual growth target as the property market slows.

CAUTIOUS OPTIMISM: China's economy has picked up thanks to government stimulus, but the slowing property sector still poses a threat to targets. Picture: Reuters
CAUTIOUS OPTIMISM: China's economy has picked up thanks to government stimulus, but the slowing property sector still poses a threat to targets. Picture: Reuters

Analysts remain cautious about the economic outlook, noting that the pick-up in growth was driven more by government support than a natural recovery in momentum, as evidenced by a surprising surge in lending by state-controlled banks in June.

Many believe the slowing property sector poses the biggest risk to the economy in the second half of the year, and thus could dictate whether Beijing sticks to a steady rollout of modest stimulus steps or considers more aggressive action such as interest rate cuts.

"The recovery is quite dependent on government support. So I think the government can choose either to tolerate lower growth or to do more stimulus to achieve their growth target," said Chang Jian, an analyst at Barclays Capital in Hong Kong.

"The biggest risk (to the economy) for the second half is a property correction and related financial risks," she said.

The economy grew 7.5 per cent in April-June from a year earlier, the statistics bureau said on Wednesday, just ahead of a median forecast of 7.4 per cent in a Reuters poll.

A raft of support measures helped lift the pace from an 18-month low of 7.4 per cent in the first quarter, with infrastructure investment and related manufacturing offsetting the drag from weak exports and the cooling property market.

Peng Wensheng, chief economist at CICC, estimated that the slowdown in property investment could cut China's 2014 economic growth by about 1 percentage point.

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