BEIJING (Reuters)-China's economy grew faster than expected during the second quarter, easing fears of a hard landing and strengthen Beijing's resolve to combat the continued high inflation.
China's statistics office said on Wednesday that stabilise prices still top priority, even if a "complex and volatile" global economy constituted a threat to growth, complicates the political choices.
Second quarter gross domestic product increased 9.5 percent from the year before, exceeding economists ' forecasts for a 9.4% growth, with the help of solid domestic consumption and investment.
But it was still the slowest pace since the third quarter of 2009, when the world economy out of its worst recession in 80 years.
Some cooling was expected--and Welcome--as China has raised interest rates and fixed on bank lending to try to reduce inflation, which hit a three-year high in June. The stronger-than-expected GDP figures suggests Beijing may have more space to tighten without restriction of growth.
"This is very good numbers," said Liu Li gang, an economist at ANZ in Hong Kong.
"It is perhaps the reason (central bank) raised interest rates last week. They show they are not afraid of a significant slowdown in the economy. "
Investors worried that Beijing's tightening campaign can exact heavy toll on the fastest growing major economy in the world, offered figures some reassurance. Industrial output in June was also stronger than expected, growing in its fastest pace in more than a year.
Asian stocks, metals and Australian dollar all increased.
China's GDP in the April-June rose 2.2 percent from the first quarter on a seasonally adjusted basis, a slight increase in the rate from 2.1 percent in the first quarter.
Chinese officials have met with a hawkish in the past few days, aware of the risk of overheating, inflation could stoke unrest.
Although many economists believe that overall inflation pressures will decrease during the second half of the year, prices have soared on popular staples such as pork and it takes time for them to slow down.
A small majority of analysts expect the central bank to raise interest rates this year again, and most forecasts of further increases in Bank reserve ratios, a Reuters poll last week showed.
Sheng Laiyun, a spokesman for China's Statistics Bureau, said stabilising inflation was the primary goal, and policies would be "targeted, flexible and effective," echoing recent statements by Premier Wen Jiabao.
"It is not easy, and China has done a good job to maintain rapid economic growth in the global situation is complex and volatile," says Sheng.
Europe's sovereign debt troubles and a slowdown in the U.S. economy involves two of China's best export customers are struggling. New export orders slipped in June, a manufacturing survey showed earlier in July, which gave rise to questions about China's growth prospects.
But Wednesday's figures suggested domestic demand remains robust. Final consumption contributed 4.6 percentage points to first-half growth, while exports, China's Statistics Bureau said subtracted.
Analysts say China's economy is on course for growth well above 9 percent this year, a rate that would be the equivalent of adding Switzerland GDP of $ 6 trillion economy.
Still, the demand weakness in China's Western export markets may cause economic growth to slow in the third quarter from the second, they say.
REDISTRIBUTION
Industrial production increased 15.1 percent in June from a year earlier, the strongest growth since May 2010. Also noticed a sharp quickening from maize 13.3 percent, beating market expectations of 13.1%.
Growth figures underlined the world's second largest economy, thanks to the country's rapid urbanization, resistance and were able to calm investor fears of a sharp slowdown, which would solve the demand for global commodities.
"Data should also help to dispel the fears about a Wilder economic collapse in China," said George Worthington, an economist with IFR, count unit Thomson Reuters.
Fixed assets investment rose 25.6% in the first six months from a year earlier, while retail trade expanded 16.8%, shows that domestic demand still can be kept relatively well in spite of austerity.
"Economic growth data is rather optimistic and industrial production is significantly stronger than expected," said Xu Biao, an economist with the China Merchants Bank Shenzhen. "It is totally beyond expectations that imports from the PRC and (buy the boss's survey) in June was fairly weak. "
Stronger demand at home helps not only to protect China from the global turmoil, it gives a bit of a cushion for the rest of the world, and proof that Beijing is making good promises to move away from the export-driven growth. But it can also increase price pressure.
Fight against inflation remains priority Beijing but some policy measures should not cause large fluctuations in economic growth, says Premier Wen in comments published on Tuesday.
He announced in June that the country would struggle to meet its average inflation target of 4% in 2011. Monthly consumer price inflation figures show an average of 5.4% in the first half of the year.
Academic adviser to the People's Bank of China was quoted by State television on Wednesday said the inflation rate may have peaked in June, when it hit 6.4 percent.
Li Daokui, a member of the central bank's monetary policy Committee, said the full-year inflation rate could be around 4.8%.
Last Wednesday, up China courses by 25 basis points--the third such increase this year--which took the one-year bank deposit rate to 3.5%.
The Central Bank has increased the benchmark interest rates five times since October and lifted banks claims reserve ratio--its best political tool so far--nine times.
(Additional reporting by Langi Chiang, Gui Qing Koh and Zhou Xin: writing Emily Kaiser: editing of Neil Fullick)
