Good news this morning in China’s report of second quarter GDP growth. Although by no means definitive good news. That is still a quarter or two away.

China’s economy grew by 10.3% in the second quarter. That was down from a clearly unsustainable 11.9% in the first quarter of 2010. Industrial production rose by 13.7% but that was less than the 15.1% increase in the first quarter. Urban fixed investment—real estate—grew by 25.5% in the first half of 2010 from the first half of 2009. That’s down from the 33.6% increase in the first half of 2009. Inflation fell to an annual rate of 2.9% in June from 3.1% in May.

All this points to a slowdown in China’s economic growth—exactly what the Chinese government, worried about rising inflation and growth in speculative  bubbles in real estate and other assets, had  had hoped to achieve by reining in bank lending. (Exactly how much bank lending has actually declined is a matter of some dispute. See my post Does China have a bigger bank lending problem than the official numbers show? Stock markets won’t like that .)

Does this mean that we can stop worrying that these measures will overshoot and China’s growth will tumble to 7% or lower in by the end of 2010? By no means. The current figures are headed in the right direction but it’s impossible to judge from one quarter’s data how much momentum the slowdown has built up. To reach any kind of conclusion on that, investors will need more data—and that means more time.

All the numbers reported today were lower than economists had forecast. The consensus, according to Bloomberg, was for GDP growth of 10.5%, growth in industrial production of 15.1%, and inflation of 3.3%. In May consumer inflation had climbed to an annual 3.1% rate, the highest rate in 19 months.

At the least the second quarter data argues that the Chinese government won’t impose new controls on lending or the real estate market. I’d suspect that the government won’t rush to remove current restrictions either, preferring to wait for at least another quarter of data. That would put policy changes into the fourth quarter of the year. I think that the odds in favor of timing like that are also increased by uncertainty over growth rates for the European Union and U.S. economies in the second half of 2010.

Stocks sold off on the Shanghai market on the report, closing 1.9% lower for the day. That brings the total loss for 2010 to 26%. It’s always hard to figure out what the Shanghai market is reacting too since on many days the market trades on little but rumors about changes in government policy. But I’d guess that today’s drop is reaction to a conclusion that the drop in GDP growth isn’t big enough to lead Beijing to change its lending and real estate rules.

Disappointing to Shanghai, perhaps, but pretty much what I was hoping for from this quarter’s numbers.