china economy surges

6/07/2009 1:00:00 PM

By Emma Thelwell, ninemsn Money

A surprise surge in China's economic growth will boost the Australian economy as demand for local commodities rises.

But it has also ramped up pressure on the Chinese government to resolve the detention of an Australian Rio Tinto executive, analysts said.

China's economy expanded by 7.9 percent over the second quarter of 2009, its government said today, outstripping economists forecasts of 7.5 percent.

Economists said the surprise uplift was good news for the Australian economy, which has so far survived a technical recession on the back of Chinese demand for resources.

China's industrial output rose by 9.1 per cent in the second quarter from a year earlier, according to official figures published today.

Savanth Sebastian, an economist at CommSec, said China's economy is on track for a sharp rebound which, going forward, puts Australian commodities in a "very popular light".

"Industrial production has picked up significantly, which means their insatiable appetite for Australian resources will continue," he told ninemsn.

Australia provides the most cost effective answer to China's resources demand, Mr Sebastian said, thanks to the high quality iron ore and our close geographical proximity.

But the detention of Australian Stern Hu and three other Rio Tinto executives by China will need to be resolved, he added.

"China will more likely not want the issue with Rio Tinto to carry on. They will certainly be looking to resolve it as soon as possible."

Last night Prime Minister Kevin Rudd switched tactics to adopt a tougher stance on China's detention of the Rio employees – which began on July 5.

Mr Rudd warned Beijing that the Rio case was being monitored by "a range of foreign governments and corporations".

Katie Dean, senior economist at ANZ, told ninemsn a recovery in China’s economy would continue to support the home economy.

While Ms Dean declined to comment on the diplomatic situation currently plauging relations with Australia's largest trading partner, she said China's recovery is good news for Australia as it will spur on commodity demand leading to a rise in the Aussie dollar.

Yesterday, Chinese state media reported that Rio Tinto had 'bribed' executives from all 16 of China's steel mills.