China’s central bank governor said the economy could grow 7 percent in the second half of this year, accelerating from the first six months and defying widespread expectations for a slowdown.
The uncharacteristically explicit growth forecast by Zhou Xiaochuan (周小川) came just days ahead of a twice-in-a-decade Chinese Communist Party (CCP) National Congress, where Chinese President Xi Jinping (習近平) is expected to strengthen his grip in a leadership reshuffle.
While China produced forecast-beating growth of 6.9 percent in the first half, many economists and investors had expected momentum would start to fade later in the year.
Those views are largely predicated on three factors: higher borrowing costs; increasing curbs on home buying to cool soaring prices; and government-mandated shutdowns of some steel mills and factories in coming months to reduce winter air pollution.
However, the driving force behind growth has been mainly rising household consumption, Zhou said in remarks published on the People’s Bank of China’s (PBOC) Web site yesterday.
“China’s economic growth has slowed over the past few years ... but economic growth has rebounded this year, with GDP reaching 6.9 percent in the first half, and may achieve 7 percent in the second half,” Zhou was quoted as saying at the G30 International Banking Seminar in Washington on Sunday.
Zhou, the country’s longest-serving central bank chief, is likely to step down next year, sources said.
Investors are waiting to see if sustained economic growth this year will give China’s leaders the confidence to quicken and deepen reforms, though many say Beijing continues to rely too heavily on debt-fueled stimulus.
The government had set a growth target for this year of about 6.5 percent. Zhou’s estimate implies an expansion of about 6.95 percent, topping growth rates in 2015 and 2016.
Economists had expected growth to ease to 6.8 percent in the third quarter and 6.6 percent in the fourth quarter, but the impact of the pollution shutdowns is a major wild card.
“Growth in the second half will be slower... I don’t think 7 percent growth is very possible,” said Xu Hongcai, deputy chief economist at the China Center for International Economic Exchanges, a prominent think tank in Beijing.
“Investment and consumption growth have eased. And foreign trade is not likely to be as strong as in the first half,” Xu said.
The IMF last week reiterated its stance that there may now be a now greater chance of a sharp slowdown in China, if authorities delay the withdrawal of hefty stimulus as they focus on achieving growth targets.
Zhou also said China remains confident in its ability to fend off systemic risks and keep its fundamentals healthy and stable.
Risks in so-called shadow banking have somewhat eased, while non-performing loans are still at a relatively low level, the central bank said.
Chinese authorities are trying to walk a fine line by containing riskier types of financing and slowing an explosive build-up in debt without stunting economic growth.
However, authorities have also frequently kept the system well supplied with cash to avoid interest rates spiking too rapidly, which could slam the brakes on growth, and some market watchers fear “deleveraging” efforts are not progressing fast enough.
Raymond Yeung (楊宇霆), Greater China chief economist at ANZ in Hong Kong, said that China needs to pay attention to high loan growth even if more funds are now flowing into real investment rather than speculative activity.
“In any economy, if you see very strong loan growth, you have to be very cautious about where the money is going,” he said.
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