China’s key July economic data adds to the optimism that the world’s third largest economy is back on the track to recovery amid the global downturn, though challenges still persist.

MORE POSITIVE CHANGES

Both investment and consumption, two major engines that drive up China’s growth, increased, according to statistics the National Bureau of Statistics (NBS) released Tuesday.

Urban fixed-asset investment rose 32.9 percent year on year in the first seven months. Retail sales, the main measure of consumer spending, rose 15.2 percent in July, following a 15 percent growth in June.

Further signs of rebound in private spending supported a sustained growth recovery, Peng Wensheng, analyst at the Barclays Capital, said in an e-mailed statement to Xinhua.

Although exports, another bedrock that fueled China’s fast growth in the past few years, fell on a year-on-year basis last month, there were signs of improvement.

China’s foreign trade figures were better than they looked on the surface. July exports fell 23 percent from a year earlier, but increased 10.4 percent from June. Imports declined 14.9 percent year on year last month, but rose 8.7 percent month on month.

According to the General Administration of Customs, the country’s foreign trade has risen since March measured from month to month, and the trend of recovery had stabilized.

Improvements in these data indicated China’s economy was recovering and the government’s policies to boost domestic demand and stabilize foreign trade had paid off, said Zhang Yansheng, a researcher with the National Development and Reform Commission (NDRC), the country’s economic planner.

Among other statistics released Tuesday, industrial output climbed 10.8 percent in July from a year earlier, quickening from 10.7 percent in June and 8.9 percent in May. Power generation, an important indicator measuring industrial activities, expanded 4.8 percent in July.

Peng expected the country’s economic growth to rise above 8 percent in the third quarter this year and 10 percent in the fourth quarter.

POLICY STANCE UNCHANGED

Despite these positive changes in China’s economy, uncertainties still existed in world economic development and some domestic companies and industries faced difficulties, said Song Li, deputy chief of the Academy of Macroeconomic Research under the NDRC.

As a result, the macro-economic policy orientation should remain unchanged, Song said.

China’s economy grew only 7.1 percent in the first half this year. This compared with double-digit annual growth during the 2003-2007 period and also the first two quarters last year.

The government set an annual target of 8 percent for this year’s economic growth, which was said essential for expanding employment.

China unveiled a four-trillion-yuan (584.8 billion U.S. dollars) stimulus package and adopted proactive fiscal policy and moderately loose monetary policy to expand domestic demand, hoping increases in investment and consumption would make up for losses from ailing exports.

To stimulate economy, lenders pumped 7.73 trillion yuan of new loans into the economy in the first seven months, the People’s Bank of China, the central bank, said Tuesday.

The surge in credit, however, sparked concerns over possible inflation and speculation about a shift in the country’s monetary policy.

Economists dispelled such concerns, saying consumer prices were still falling and the growth in new bank loans eased in July.

The consumer price index (CPI), a main gauge of inflation, dipped 1.8 percent in July from a year earlier. The producer price index (PPI), which measures inflation at the wholesale level, fell 8.2 percent year on year last month.

New lending in July cooled to 355.9 billion yuan, less than a quarter of the June total of more than 1.5 trillion yuan.

Premier Wen Jiabao reaffirmed during the weekend that China would unwaveringly adhere to its proactive fiscal and moderate monetary policies in face of economic difficulties and challenges, like ailing exports and industrial overcapacity.

Wen’s stance echoed Zhu Zhixin, vice minister in charge of the NDRC, who underscored on Friday that there would be no change in China’s macro-economic policy as the overseas market was still severe.

He warned that any change in the macro-economic policy would disturb the recovery or rebound momentum, or even perish the previous efforts and achievements.

"Efforts to keep a stable and fast economic development is the top priority of the country in the second half," he said.