Growth beats forecasts as it stays at 7%

Analysts expect to see modest recovery over the coming months as risks subside

The government announced on Wednesday that GDP grew by 7 percent in the second quarter, and the figure prompted experts to predict an improvement in the economy over the coming months.

"Downside risks are getting smaller," said Ding Shuang, chief China economist at Standard Chartered in Hong Kong. "A modest recovery is expected in the second half."

The National Bureau of Statistics said the year-on-year growth of the world's second-largest economy remained unchanged from the first quarter figure, beating previous market estimates of 6.8 percent.

Economists attributed the new growth to the economy's resilience and the pro-growth policies the government adopted in the early months of the year, and expected that the policy orientation will remain on course in the third and fourth quarters.

The country's GDP totaled 29.68 trillion yuan (nearly $4.8 trillion) between January and June. The bureau said industrial output rose by 6.8 percent in June, while fixed-asset investment, including the building of new public facilities, increased by 11.4 percent in the first half.

It is noteworthy that the service sector contributed 49.5 percent of total GDP－2.1 percentage points more than in the same period last year－compared with the industrial sector's 43.7 percent, a government spokesman said. Agriculture accounted for the rest.

Inflation was 1.3 percent in the first half of the year, markedly lower than the government's targeted annual ceiling of 3 percent.

Louis Kuijs, chief economist in China at the Royal Bank of Scotland, said, "We expect overall economic growth to benefit in the second half from the policy easing and also from some modest improvement in global demand momentum."

Jeremy Stevens, an economist at Standard Bank, said fixed-asset investment will be the "most important head wind" for the remainder of the year.

"The worry is that the headline growth number improves in the third quarter but at the expense of worsening structural imbalances in the economy," he said.

"The banks' new lending has not been matched by commensurate new deposit growth because funds are leaving China or going into stocks. This will cause some banks to bump up against the statutory limits on loan-to-deposit ratios."

The country's foreign exchange reserves fell by $40 billion in the second quarter to $3.69 trillion, less than the $113 billion drop in the first quarter. However, it was the fourth straight quarter of decline, according to People's Bank of China.

Bloomberg contributed to this story.