• Annual GDP in China reaches 7.9%
• ‘The recovery is not fully balanced’ warns government

China’s economic growth accelerated in the second quarter of this year as a massive stimulus package kicked in, lifting hopes that it could drive the rest of the world towards recovery.

Annual gross domestic product growth in the world’s third largest economy rose from 6.1% in the first quarter of the year to 7.9% – well above predictions – the National Bureau of Statistics reported today.

The latest rise indicated that the country was on course to achieve its growth target of 8% for the year, said Jing Ulrich, JP Morgan’s chairwoman for China equities.

“The recovery is confirmed. The bottom was the fourth quarter last year,” Hao Daming, a senior economist at Galaxy Securities in Beijing, told Reuters.

Many have hoped that China’s huge industrial expansion and growing middle class hungry for consumer goods and previously unattainable luxuries such as cars could help to lead the world into recovery.

But while officials heralded the good news, they cautioned that the basis of the rebound was not stable.

Predictions of China’s 2009 growth have wavered up and down, but the International Monetary Fund recently raised its forecast by one percentage point to 7.5% and the World Bank boosted its forecast to 7.2%.

Li Xiaochao, a spokesman for the statistics office, said the data had laid a foundation for hitting the 8% growth target, believed by many to be the level needed to hold unemployment down.

“Our economy is continuing to turn for the better and there are more and more positive factors,” Li told a news conference.

“We see more people shopping and prices beginning to rise. The economy is recovering and the recovery is intensifying. All the government’s policies have worked together to help us overcome the financial crisis,” he said.

But he warned: “The basis of the rebound of the people’s economy is not stable. The recovery is not fully balanced, so there are some regions that have not done as well as others.”

A breakdown of the 7.1% GDP growth rate for the first half of 2009 showed that investment accounded for 6.2 percentage points – reflecting the government’s infrastructure-driven 4 trillion yuan (£356bn) stimulus package. An increase in bank lending also helped the economy to pick up.

Consumption added 3.8 percentage points to GDP, but net exports, which have slumped this year, subtracted 2.9 points.

Factory output growth rose 10.7% in June, faster than May’s 8.9% growth, the bureau said.

“It’s clear to me that China is really successfully shifting from export-driven growth to domestic-driven growth. It’s very encouraging,” Tim Condon, head of Asia Research at ING in Singapore, told Reuters.

Analysts are warning that concerns about inflationary expectations could soon lead to a tightening of monetary policy.

“There are still quite a lot of uncertainties. We should remain watchful about changes in prices,” Li told reporters.

Brian Jackson, an economist at the Royal Bank of Canada in Hong Kong, told Reuters: “In the near term, we think the focus will remain on supporting growth, but there is an increasing chance that policy will need to be tightened sooner and more forcefully to deal with potential problems caused by very easy liquidity. The accelerator is clearly working well, but at some stage the brake will need to be used.”