A labourer works atop a commercial building in Kunming, Yunnan province, China. Picture: REUTERS/WONG CAMPION
A labourer works atop a commercial building in Kunming, Yunnan province, China. Picture: REUTERS/WONG CAMPION

Beijing — China posted faster second-quarter growth on Monday, and oil refineries increased throughput to the second-highest on record.

However, analysts warned that the momentum in gross domestic product (GDP) growth would not last as authorities clamp down on rising debt.

The economy expanded 6.9% in April-June, the same as the previous three months and better than the 6.8% tipped in an AFP survey.

"The national economy has maintained the momentum of steady and sound development in the first half of 2017, laying a solid foundation for achieving the annual target and better performance," national statistics bureau spokesman Xing Zhihong said.

"However, we must be aware that there are still many unstable and uncertain factors abroad and long-term structural contradictions remain prominent at home," Xing told reporters.

Industrial production grew 7.6% in June while retail sales were up 11%, both better than the previous month, according to the official data.

But analysts expect a deceleration of the overall economy.

"China’s strong first half to the year won’t last," Julian Evans-Pritchard, China economist at Capital Economics, said in a note.

"The recent crackdown on financial risks has driven a slowdown in credit growth, which will weigh on the economy during the second half of this year," he said.

Debt-fuelled investment in infrastructure and real estate has underpinned China’s growth for years but Beijing has launched a crackdown over fear of a potential financial crisis.

Fitch Ratings on Friday maintained its A-plus rating for the country but said its growing debt could trigger "economic and financial shocks".

The statement followed Moody’s decision in May to downgrade China for the first time in almost three decades on concern about its ballooning credit and slowing growth.

President Xi Jinping called for tougher regulations to crack down on financial risks during a weekend National Financial Work Conference, which sets the tone for reforms, according to state media.

The government would continue to deleverage the economy through prudent monetary policy and by reducing leverage in state-owned enterprises, Xi said.

The conference showed that authorities would intensify financial regulation "unprecedentedly, through a much more centralised and empowered organisational set-up", ANZ’s China economist, Raymond Yeung, said in a note.

"Debt reduction will become an important consideration in monetary policy," Yeung said, predicting more corporate defaults and a tightening of credit policy among banks.

Despite the economic deleveraging, however, "we do not think this event will trigger an immediate monetary tightening".

Analysts expect tighter restrictions on property purchases and bank lending will continue to weigh on the economy in the months ahead.

But a sharp slowdown in the second half is unlikely as policy makers prepare for an important Communist Party congress later this year that will likely cement Xi’s place as the most powerful leader in a generation.

"It is therefore highly probable that authorities will use the resources and policy tools at their disposal to ensure a positive economic outcome," Citibank said in a note.

The government has trimmed its 2017 growth target to about 6.5%, after it expanded 6.7% in 2016 — its slowest rate in more than a quarter of a century.

While the Nomura Group raised its 2017 growth forecast from 6.7% to 6.8%, the Tokyo-based financial firm said in a note that it still expected a "gradual slowdown" as the property sector appears set to "lose steam" in the second half.

Premier Li Keqiang said last month that the country could reach this year’s economic growth targets.

Last quarter’s growth momentum had continued into the current one, he said, noting that traditional economic indicators such as power generation and consumption, and new business orders had increased "significantly".

Oil demand

China’s oil refineries ramped up throughput in June to the second-highest on record, with some independent plants raising output even as state oil majors prepare to take drastic steps to cut production during the peak summer season.

Throughput last month reached 46.08-million tonnes, or 11.21-million barrels a day, a 2.3% rise from a year earlier and up from May’s 10.98-million barrels a day, data from the National Bureau of Statistics showed on Monday.

That was just shy of December’s record volume of 11.26-million barrels a day.

The higher throughput came after another month of strong crude oil imports and as top refineries prepared to cut output in the third quarter.

"Refinery runs were impressive considering that refinery maintenance was still heavy," said Nevyn Nah, analyst at Energy Aspects.

Independent refiners, known as "teapots", raised their runs after receiving additional crude import quotas, while oil majors kept their throughput roughly flat year on-year, he said.

For the first six months, refinery production in the world’s second-largest fuel consumer gained 3% from a year earlier to 275.21-million tonnes, or about 11.1-million barrels a day.

Upcoming cuts to production by the oil majors would not be as deep as many in the market expected, Nah said, because the planned cuts were from very high levels in the first quarter.

The stats bureau’s data on Monday also showed domestic crude oil output fell 2.3% last month from a year ago to 16.21-million tonnes, or 3.94-million barrels a day, but up from May’s 3.83-million barrels a day.

Output during the January-June period was down 5.1% year on year at about 3.89-million barrels a day.

Declines in China’s crude oil output have slowed as major oil producers raised spending to boost production as oil prices stabilised in a $48-$55 a barrel range, and analysts have forecast flat or positive production growth for calendar 2017.

Natural gas output climbed 14.6% in June from a year earlier to 11.5-billion cubic metres, but marked the lowest level since October.

Natural gas production increased 8% from a year earlier to 74.1-billion cubic metres for the January-June period, the data showed.

China’s gas consumption growth has been quickening since the start of this year after a nearly three-year lull, according to analysts, thanks to stronger demand from industrial and power sectors under a government push to wean them off their coal addiction.

AFP and Reuters

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