Beijing's Stimulus Measures Helped China Economy Grow in Second Quarter

Beijing's stimulus measures have helped China's Gross Domestic Product in the second quarter of the year rise 7.5 percent yoy from 7.4 percent in 1Q, according to a BofA Merrill Lynch Global Research report.

The country's sequential growth (QoQ, seasonally adjusted, not annualized) jumped to 2.0% in 2Q from 1.4% in 1Q.

The government's stimulus measures have focused on increasing spending in infrastructure (especially railway) and social housing.

Unlike previous stimulus policies, Beijing has been relying mainly on itself (instead of local governments) to fund the spending.

"We believe Beijing is quite serious about its 7.5% growth target as it needs a stable economic and financial backdrop as it steps up its anti-corruption campaign," says the report.

BofA Merrill Lynch believes the new government will most likely continue its mini-stimulus in the face of higher base effect and some strong headwinds in 2H.

With a high comparison base, Beijing needs an average 2.0-2.1% QoQ growth to deliver the 7.5% annual growth target, and there are still strong headwinds as a consequence of the anti-corruption campaign and property downturn.

"We expect Beijing to continue its mini-stimulus program in coming months, but we continue to believe that the chance of a universal RRR cut and rate cut is quite small, and room for CNY/USD depreciation is quite small too," says the report.    

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