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China’s growth recovery takes pause but remains on track

Updated: Aug 25,2014 10:38 AM     Xinhua

China’s economic recovery took a temporary pause in July owing to weaker domestic investment demand, but it still remained on track, said Wang Tao, chief China economist at Switzerland’s largest bank UBS, in a research note.

China’s macro economic data for July suggested the economic rebound since early this summer has taken a temporary pause, she said.

Although industrial production growth still printed a respectable 9.0-percent year-on-year despite last year’s high base, growth momentum moderated slightly compared to June and was lower than expected.

While July’s industrial production weakness was led by China’s power and ferrous metals sectors, fixed-asset investment was hampered mainly by manufacturing and property investment. “Weakness persisted in private property activities as manufacturing investment simultaneously decelerated,” she wrote.

China’s credit data in July was much weaker than expected, dealing a big negative surprise to markets in light of recent expectations for strong easing. July’s new loans fell from June’s over 1 trillion yuan ($162.6 billion) to 385 billion yuan.

“The blame rested with seasonal factors and changing shadow banking activity, not policy tightening. As such, August’s credit numbers should improve,” she said.

Wang maintained that summer rebound had taken a breath, but it remained on track. Continued policy support and improved external demand should keep China’s growth momentum relatively firm through September.

The positive impact of still accommodative liquidity conditions, faster fiscal spending, and additional policy support, including intensified support for social housing and relaxation of local property restrictions, will still likely be felt in the next few months.

Wang projected China’s economic growth at 7.3 percent to 7.4 percent in the third quarter.

The Chinese economy expanded by 7.5 percent in the second quarter of this year, slightly higher than the 7.4 percent growth in the first quarter.

Wang also said the rebound is not likely to last through year-end.

There is some optimism that the worst in China’s property sector downturn may be soon over, and that further policy easing will help support sales and construction in the coming months.

“We do expect some improvement in sales and construction in the next few months, as already incorporated in our forecast ... we believe property construction will slow further by year end and into 2015 as the structural shift in this sector’s demand and supply balance advances.”

As the negative impact of the property slowdown weighs more heavily on the overall economy, the economist expected the Chinese economic growth to further slow down to 6.8 percent in 2015.