China can withstand economic headwinds

Despite downside pressure, the Chinese economy is expected to remain stable in the second half of this year. The year-on-year GDP growth rate for 2019 is expected to be no lower than 6.2 percent.

Several factors will help China withstand headwinds from global slowdown and other external instabilities.

First, as the country is a developing economy with lots of weak links, investments in numerous areas still offer prospects of relatively high returns.

Second, consumption is expected to continue a steady growth, given the stimulus of recently implemented large-scale tax cuts. Additional policies to boost consumption are probably on the horizon.

Also, macro policies still have room for maneuver toward steady growth. Proactive fiscal policy will continue in the second half. Meanwhile, monetary policy could be adjusted to counter downside pressure, as inflationary risks are controllable and as the US Federal Reserve may cut interest rates in the coming months.

Against the backdrop of increasing policy support for the real economy, an upside for the A-share market can be expected in the second half of the year, given the relatively cheap valuations of listed firms.

Fluctuations in the bond market may offer investment opportunities as the room for further interest rate falls is limited.

In the long term, China will rely on new growth points to achieve a healthy development. The shift in driving forces, however, takes time to realize, making it important to foster the new economy and vitalize traditional growth engines for the purpose of stabilizing growth.

The launch of the Nasdaq-style tech board STAR Market is conducive to helping new-economy enterprises develop themselves, and provides a new channel for domestic investors to share the benefits of economic upgrading.

Infrastructure investment currently grows fairly slowly as financing condition has tightened. Policy support is expected to strengthen, to meet local governments' reasonable financing needs relating to infrastructure investment.

In addition, financing difficulty faced by enterprises has been eased to some extent this year with quickened credit expansion. But structural obstructions in financing channels remain, making more policies to facilitate financing of small businesses necessary.

Xu Gao is chief economist of BOC International (China) Co Ltd. The analysis above is based on his recent interview with China Securities Journal.