China surprises with gravity-defying 7 pct 2H outlook

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SHANGHAI/BEIJING: China’s central bank governor said the economy could grow 7 per cent 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 came just days ahead of a twice-in-a-decade Communist Party Congress, where President Xi Jinping is expected to strengthen his grip in a leadership reshuffle.

While China produced forecast-beating growth of 6.9 per cent 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.

But 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) website on Monday.

“China’s economic growth has slowed over the past few years…but economic growth has rebounded this year, with GDP reaching 6.9 per cent in the first half, and may achieve 7 per cent 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 told Reuters.

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-fuelled stimulus.

The government had set a 2017 growth target of around 6.5 per cent. Zhou’s estimate implies an expansion of about 6.95 per cent, topping growth rates in 2015-2016.

Economists had expected growth to ease to 6.8 per cent in the third quarter and 6.6 per cent 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 per cent growth is very possible,” said Xu Hongcai, deputy chief economist at China Center for International Economic Exchanges (CCIEE), 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.”

The International Monetary Fund 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. — Reuters