China's Q2 GDP to show signs of stabilization

The breakdown of GDP by industry segments show China's primary industry picked up slightly to 3.5% y/y form 3.2% in Q1 while the secondary industry slowed for the 3rd consecutive quarter to 6.1% from 6.4% in Q1. China's Q2 GDP came in better than expected at 7% y/y and unchanged from Q1. On a quarterly basis, growth picked up to 1.7% q/q from 1.4% in Q1.  

The main growth segment came from the tertiary or services industry which rose 8.4% from 7.9% in Q1. The rest of the monthly releases for June were also firmer than expected, including  industrial production rose 6.8% y/y, retail sales up 10.6% y/y and Non-rural fixed asset investment up 11.4% YTD and unchanged from May. 

Commerzbank says, the following are implications from the latest figures:

1) Signs of stabilization in growth

2) The government's stimulus efforts are beginning to have some impact, namely restarting the infrastructure projects along with the interest rate and RRR cuts

3) A soft landing scenario for China - fears over the negative fallout from the stockmarket rout in recent weeks may be overblown. 

However, the test resilience in the Chinese economy will be whether we see consistency in other indicators including a pickup in employment growth after it fell 200k in Q1 2015 or -5.8% y/y, stronger electricity consumption in line with firmer industrial production and stronger imports which should be reflected in firmer exports from regional economies. The Shanghai Composite is down nearly 2% this morning and is holding below the 4,000 level. There is little reaction for USD-CNY, it still holding around the 6.2090 level.