CHINA’S ECONOMY is on track to hit the government’s growth target of 8 per cent this year following increased government spending and a surge in bank lending in the second quarter.

The economy expanded at an annual rate of 7.9 per cent in the three months to the end of June, the National Bureau of Statistics announced yesterday. Investment in industrial production and retail sales all contributed to higher output.

China’s accelerating growth has already lifted prices of commodities such as iron ore and copper and boosted economic output of raw materials exporters such as Australia and Brazil.

The speed of the Chinese recovery, without an accompanying boost in demand from advanced economies in North America and Europe, has surprised economists and led the International Monetary Fund to revise upwardly its outlook for the world economy earlier this month.

The Chinese government’s mass injection of money into the economy has also pumped air back into the asset price bubbles in the domestic property and stock markets.

Li Xiaochao, a spokesman for the NBS, said the economy “had stabilised with increasing positive changes” after dipping sharply at the end of last year and expanding at an annual rate of only 6.1 per cent in the first quarter. This led many economists to believe that the government would not be able to meet its year-long growth target of 8 per cent, but the government’s pump-priming has turned the economy round.

“The Rmb1,530 billion [€158 billion] in new loans in June brought total new lending in the first half of the year to Rmbl,400 billion, or almost one quarter of our estimated 2009 GDP,” said Wang Tao, of UBS, in Beijing.

“We now expect total new lending in 2009 to reach Rmb9,000 billion, a speed of releveraging unprecedented in China’s history.”

The bank lending and fiscal spending has driven fixed-asset investment, the prime engine of growth, up 33.5 per cent in the first half of the year compared with the same period in 2008.