Economic Watch: Half-Year Growth

GDP target in sight, but barely

Zhu Jianfang chief economist with CITIC Securities Co Ltd

Amid a continued slowdown, the nation's full-year 7.5-percent growth target can be achieved, but it will take an effort.

In view of the current situation, growth in the second half of this year is likely to continue slowing. Without a moderate adjustment in policies, and fully relying on the present economic momentum, there will be some difficulty in achieving the growth target.

Real external demand will slightly improve in the second half, but to a limited degree. Export growth in the second half will be a little faster than in the second quarter.

It is possible for exports to slightly pick up in the second half, reflecting moderate expansion in overseas demand and base effects compared with the second half of last year.

Fixed-asset investment growth will be under downward pressure in the second half of 2013 as infrastructure investment recedes and real estate investment rises and then declines.

Investment in manufacturing will continue its adjustment period for another year or two. For the full year, we will see fixed-asset investment grow about 20 percent.

Consumption growth in the second half will remain weak and the whole year will see total retail sales rise 12.8 percent year-on-year. Sales of housing-related products and vehicles will see quite good growth in the second half.

The consumer price index, which gauges consumer inflation, will rise 2.5 percent year-on-year in 2013 while the producer price index, which measures wholesale inflation, will fall 1.7 percent.

I think the major problems in China's current economic situation are as follows.

First, the financial sector is remarkably far from supporting real economic growth. A sluggish economy requires more money to achieve similar growth, while China's interest rates, which are yet to be marketized, offer wide scope for risk-free arbitrage.

Large companies get preferential loans and re-lend the money or put it into financial products, which has expanded the total social financing scale.

Some credit in recent years flowed into industries with excess capacity or public services facing funding shortages, leaving rollovers as a solution to extend the debts.

Second among China's problems is that industrial overcapacity is spreading into an increasing number of industries.

Third, housing prices keep rising.

Fourth, fiscal pressure keeps mounting. The growth of fiscal revenue has eased and may miss the full-year target.