China’s Economic Growth Slows in the Second Quarter

All told, China’s government said Thursday that gross domestic product grew by 7.9% in the second quarter from a year earlier, in line with economists’ expectations.

While that growth rate was far slower than the 18.3% year-over-year GDP jump during the first three months 2021, nobody expected China’s economy to sustain that pace of growth as the statistical distortions from last year’s pandemic crisis faded.

The second-quarter growth figure helped power China’s economy to a 12.7% expansion for the first half of the year compared with the pandemic-scarred first six months of 2020.

Beneath the headline GDP figure, stronger-than-expected readings on factory output, retail sales and fixed-asset investment data in June are likely to quiet rising speculation that Beijing will intervene more forcefully to keep its growth momentum going in the latter half of the year.

Last week, in a move that surprised many in the market, Beijing moved to free up more liquidity in the banking sector for lending, hinting at high-level concerns about slowing economic activity.

But further stimulus might not be needed. With the 12.7% first-half growth figure, policy makers now appear to have lots of cushion to hit their full-year growth target of at least 6%—even if the economy slows considerably in the second half.

Beijing has been careful in managing economic expectations this year, given the myriad uncertainties around the coronavirus pandemic and the global recovery.

The growth target of 6% or more, set by China’s Premier

Li Keqiang

in March, was widely regarded by economists as being conservative. Many forecasters expect China to easily post 8% growth or more this year, given the low base of comparison from 2020.

Beijing has also signaled it would be comfortable with more modest growth this year as it resumes longer-term efforts—interrupted by the pandemic—to deal with deeper imbalances in the economy, including rising debt levels, runaway housing prices and an aging population.

Now, the unexpected second-quarter resilience could allow Beijing to sustain relatively fast growth while also tackling these longer-term issues.

Economic strength could be seen across the spectrum. Industrial output rose 8.9% in the second quarter and 8.3% in June compared with a year earlier, according to data released by the National Bureau of Statistics Thursday, beating expectations.

Retail sales, a key measure for China’s consumer spending, increased 13.9% in the second quarter and 12.1% in June from a year earlier, also topping forecasts.

Fixed-asset investment grew 12.6% in the first six months of the year, again beating expectations.

China’s urban surveyed unemployment rate, its headline measure of joblessness, stood steady at 5.0% in June, the same as in May, the statistics bureau said.

The figures on Thursday came after data released earlier in the week showing exports, a workhorse of the recovery that has so far delivered month after month of outperformance, turning in another better-than-expected result in June.

The firm numbers underscore the appeal of China’s market for American companies, in spite of rising geopolitical tensions.

Levi Strauss

& Co., the American bluejeans maker, reported a better-than-expected quarter in the three months ended May 30, thanks in part to higher sales in China that topped pre-coronavirus levels.

Charles Bergh,

Levi Strauss’ president and chief executive, said this month that quarterly sales in China rose 3% from the same period in 2019 as the company shifted more of its sales to online channels in what he called “one of our largest growth opportunities.”

Northern Technologies International Co.

, a maker of biodegradable plastics and corrosion-inhibiting products, said net sales at its China subsidiary jumped 30.7% from a quarter earlier to a record high in its most recent period, which ended May 30.

“We expect China will likely become our largest geographic market in the coming year,” Chief Executive Patrick Lynch said earlier this month.

The Circle Pines, Minn.-based company is investing $6.2 million this month to acquire a new facility in Shanghai to support its China operations.

Not everyone is benefiting as much. Sherry Cai, sales manager at Guangzhou C&Y Filter Co., a small filter manufacturer with two production lines in China’s southern Guangdong province, says soaring prices for raw materials this year have eviscerated its profits, even as customer demand remains steady.

“The rise in the raw material prices is the biggest problem we face this year,” said Ms. Cai, who said prices for imported filter paper from South Korea jumped by nearly 30% in the first half of the year.

In addition to the rise in raw materials prices, the company also faced a shortage in shipping containers and a stronger yuan, which makes its products less competitive on the global market.

“The profit margin on our products is only 10%. If the cost has increased by 30%, while we can’t transfer all the increase to our customers,” Ms. Cai. “We have to eat the cost.”

—Grace Zhu and Bingyan Wang contributed to this article.

Write to Jonathan Cheng at jonathan.cheng@wsj.com