PEKIN (Reuters)-Growth of the Chinese economy beat expectations in the second quarter, showing a certain resilience in a context of trade war with the United States, but it has marked a slowdown which highlights underlying weaknesses and increased risks.

Until now, support measures deployed by Beijing and the recent commercial truce, certainly fragile, sealed by the Chinese government with Washington have allowed the second world economy to avoid a hollow.

But the markets fear that the Chinese economy really marks the step in the second half, between exports to the idle, prices in withdrawal and a morale of consumers at half mast – which could accentuate pressure on the government so that it strengthens its stimulus measures.

Official data published on Tuesday show that the gross domestic product (GDP) of China increased by 5.2% at an annual rate in the second quarter, slightly beating the consensus which appeared at +5.1% but slowing down to the previous quarter ( +5.4%).

Beijing has set an annual growth target located around 5%.

“China achieved in the second quarter greater growth in the official 5% objective partly due to exports made by anticipation” in the face of customs duties, commented Zhiwei Zhang, chief economist of Pinpoint Asset Management.

This growth greater than the annual objective set by Beijing “gives the government a margin to tolerate a certain slowdown in the second half of the year,” he added.

In quarterly rhythm, the Chinese economy increased by 1.1% over the period April-June, show the data from the National Statistics Bureau (SNB), also beating consensus which appeared at +0.9% after an increase of 1.2% in the previous quarter.

Mixed table in June

Investors are watching for any warning signs of additional support measures at the Politburo meeting, scheduled for late July, during which economic policy should be decided for the rest of the year.

Beijing has increased its expenses in infrastructure and consumer aid, in parallel with a constant relaxation of its monetary policy – the Banque Populaire de China reduced its interest rates in May in the context of measures to protect the economy of the US president Donald Trump.

If support measures and a drop in additional rates are expected in the coming months, observers and analysts say that the stimulus could be insufficient to combat deflationary pressures. Production prices in China fell in June at an unprecedented rate for almost two years.

In the eyes of Zichun Huang, an economist at Capital Economics, GDP data gives a probably too positive vision of the solidity of growth. “And with the exports that should slow down, and the breath of financial support measures fading, growth should slow down more in the second half,” she said.

According to the latest consensus compiled by Reuters, analysts expect Chinese growth to slow down 4.5% in the third quarter and then to 4.0% in the fourth quarter, highlighting the increased pressures faced by the second world economy in the context of trade war triggered by Donald Trump.

Distinct data also published on Tuesday gives a mixed table of activity in June: Chinese industrial production has accelerated at a rate greater than expectations, while retail sales has slowed down.

Industrial production increased in an annual rate of 6.8% last month, according to BNS, after growth of 5.8% in May, while consensus was +5.7%. This is an unprecedented acceleration since last March.

Retail sales, which serve as an indicator on consumption, increased by 4.8% in June, marking a slowdown compared to the previous month (+6.4%). Analysts anticipated an average of an increase of 5.4%.

(Joe Cash, Ellen Zhang and Kevin Yao; Jean Terzian)

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