In June, foreign investment in China grew just 2.8% to $12.86bn compared to a year earlier

In June, foreign investment in China grew just 2.8% to $12.86bn compared to a year earlier

In the second quarter of 2011, China recorded GDP growth of 9.5%, down from the 9.7% increase in the first quarter and down from 10.3% growth in the comparable year-ago period. While the performance beat expectations, one industry observer believes the figure paints a story of a resilient slowdown, while another questions whether China's current path of growth is sustainable.

There is no doubt that China's economy is expanding, and multinational drinks firms remain increasingly reliant on the country for growth, which is why any sign of weakness in the country's second fiscal quarter is likely to leave investors a little unnerved.

The figures, published by the National Bureau of Statistics on Wednesday (13 July), showed the country's GDP rose 9.5% against an expected increase of 9.4% for the three months to the end of June. The news helped to lift the Shanghai Composite index by 1.5% in Asia on Tuesday, while Hong Kong's Hang Seng index added 1.2%.

Industrial production was also up, by 15.1% against an expected increase of 13.7% for the period, while monthly retail sales rose 17.5%, also higher than expected.

Good news for investors no doubt, given that many are now looking to China to sustain a global economy that is still wavering in the US and Europe.

For drinks firms in particular, Cognac producers Remy Cointreau and Pernod Ricard, as well as soft drinks giants like The Coca-Cola Co and PepsiCo, have all used momentum in China to offset stagnation in western markets.

Only this month, the CEO of PepsiCo told China's vice-premier Wang Qishan that the company is is keen to increase its investment in China. Last year, the soft drinks firm pledged an investment of of $2.5bn in its food and beverage businesses in the country.

Anheuser-Busch InBev, meanwhile, is also looking to up the presence of its global beer brands in China as it lines up a push for Stella Artois in the country. The company also strengthened its grip on the Henan province by signing a deal to acquire Weixue Beer Group Co earlier this year. Nestle is also making its presence felt in the country through the purchase of a controlling stake in Chinese food and drink maker Yinlu Foods Group.

There is certainly no shortage of investors and, with China's growth rate one of the fastest in Asia, the country is cementing its position as the world's second largest economy, behind the US.

Bank of America-Merrill Lynch analyst, Lu Ting, believes China's second quarter data should be market-positive and believes that the Chinese economy is "on track for a soft landing despite rising market concerns of a hard landing".

Tin told the Wall Street Journal: "Regarding implications on policies, with a coming decline in headline inflation and rising concerns on growth, we believe the period of most intensive rate and reserve requirement ratio hikes is already behind us."

Indeed, China has insisted that controlling prices is its top priority after inflation hit a three-year high last month.

Ting believes that further tightening measures are likely before the year is over.

"The Chinese government will continue its 'tight monetary, loose fiscal' policy mix by sticking to its 16% M2 growth target and by making fiscal policy more supportive of growth in the second half of 2011," he added.

Sheng Laiyun, a spokesperson for China's statistics bureau told the BBC that the Government's policies would be "targeted, flexible and effective" to ensure the target - to keep inflation under control - is met.

"It's not easy and China has done a great job to maintain fast economic growth when the global situation is complex and volatile," Laiyun said.

Earlier this year, in the World Economic Forum's Global Risk Report 2011, China's Minister of Commerce, Chen Deming, outlined Beijing's plan to further open its economy, with a three-prong strategy of encouraging Chinese companies to invest overseas, increasing overseas buying and boosting domestic consumption. At current rates of growth, he said, "ten years from now, [China's] imports will be bigger than the total [volume] of world trade currently".

While this may be true, it could also be fair to say that China's rapid expansion in recent times has been fuelled by a credit boom in the country.

As global economies attempted to get a grip on the world's financial crisis, it seems that Chinese banks have been lending record sums of money in a bid to fuel the country's growth rate.

However, analysts believe that, while this easy access to cash did indeed fuel growth, it has also created issues for the government.

"You have to look at what's driving growth in China, it's mainly investments," Patrick Chovanec, an associate professor at Tsinghua University in Beijing, told the BBC. "This investment is being financed by expanding the money supply, which is fuelling inflation.

"A lot of the investment that is going out, there is a real question being raised about whether it is going to generate return and a lot of it has started to show up as bad debt in the banking system," he added, warning that the current path of growth in China is unsustainable.

"What we are seeing is not necessarily a strong economy, it's an economy that has been pumped up on steroids," Chovanec said.

Last year, foreign investment into the Chinese economy totalled $105.7bn, according to BBC figures. This is now showing signs of slowing. For the month of June, foreign investment grew just 2.8% to $12.86bn, down significantly from May's 13.4%.

While it is clear that foreign investment is still being pumped into China, a tighter monetary policy has undoubtedly had an impact on that level.

Soaring inflation, coupled with the higher cost of borrowing, is certain to have investors worried about whether the country can maintain its growth rate. This is sure to have an impact on future investment decisions.