China’s economy posts stable progress but risks stay

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China reported better-than-expected second quarter growth on Monday, but analysts warned that the momentum will not last as authorities brace down on rising debt.

The economy developed 6.9 percent in April-June, the same as the previous three months and better than the 6.8 percent hauled in an AFP survey.

National statistics bureau spokesman, Xing Zhihong said,”The national economy has maintained the momentum of steady and sound development in the first half of 2017, laying a solid foundation for achieving the annual target and better performance.”

Xing told reporters, “However, we must be aware that there are still many unstable and uncertain factors abroad and long-term structural contradictions remain prominent at home.”

According to the official data that both better than the previous month, industrial production grew 7.6 percent in June while retail sales were up 11 percent.

But analysts expect a decline of the overall economy.

China economist at Capital Economics, Julian Evans-Pritchard said in a note, “China’s strong first half to the year won’t last.”

He said, “The recent crackdown on financial risks has driven a slowdown in credit growth, which will weigh on the economy during the second half of this year.”

Debt-charged investment in infrastructure and real estate has underpinned China’s growth for years but Beijing has launched a crackdown over fears of a possible monetary crisis.

Fitch Ratings on Friday maintained its A-plus rating for the country for China but said its growing debt could activate “economic and financial shocks”.

The statement followed Moody’s decision in May to downgrade China for the first time in almost three decades on affects over its ballooning credit and slowing growth.

According to state media which sets the tone for reforms, President Xi Jinping called for tougher regulations to crack down on financial risks during a weekend National Financial Work Conference.

The government will continue to deleverage the economy through wise monetary policy and by reducing leverage in state-owned enterprises, Xi said.

ANZ’s China economist Raymond Yeung said in a note, “The conference showed that authorities will intensify financial regulation “unprecedentedly, through a much more centralised and empowered organisational set-up.”

Predicting more corporate standard and a securing of credit policy among banks, Yeung said, “Debt reduction will become an important consideration in monetary policy.”

Despite the economic deleveraging, however, “we do not think this event will trigger an immediate monetary tightening”.

Analysts expect tighter restrictions on property purchases and bank lending will continue to weigh on the economy in the months ahead.

But a sharp slowdown in the second half is unlikely as policymakers prepare for an important Communist Party congress later this year that will likely cement Xi’s place as the most powerful leader in a generation.

Citibank said in a note, “It is therefore highly probable that authorities will use the resources and policy tools at their disposal to ensure a positive economic outcome.”

The government has cropped its 2017 growth target to around 6.5 percent, after it expanded 6.7 percent in 2016 its slowest rate in more than a quarter of a century.

While the Nomura Group raised its 2017 growth forecast from 6.7 percent to 6.8 percent, the Tokyo-based monetary firm said in a note that it still expects a “gradual slowdown” as the property sector appears set to “lose steam” in the second half.

Premier Li Keqiang said last month that the country could reach this year’s economic growth targets.

Last quarter’s growth momentum had continued into the current one, he said, noting that traditional economic measures such as power generation and consumption, and new business orders had expanded “significantly”.

Source: AFP

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