Downside risks in focus for China's economy

BEIJING - Market focus has turned to the downside risks facing China's growth in the short term after hopes of a steady recovery in the world's second largest economy proved to be in vain.

A survey of 10 economists polled by Shanghai Securities Journal showed that their thoughts on China's economic climate have moved from "normal" towards "relatively cool," underlining continuing weak growth momentum after a short-lived rebound in the fourth quarter last year.

The median forecast of China's growth in the second quarter came in at 7.65 percent, slightly retreating from the 7.7-percent rate seen in the first quarter, according to the survey.

With the exception of consumption, most of the polled economists expect the country's fixed asset investment and export growth to ease for the April-June period, as the effect of government stimulus policies introduced last year gradually waned.

Retail sales are likely to grow by 12.81 percent, while fixed asset investment, exports and imports are predicted to increase by 20.3 percent, 6.07 percent and 7.05 percent respectively, according to the survey.

The economists, including Liu Ligang, chief China economist at ANZ and Lu Zhengwei, chief economist with Industrial Bank, attributed the weak strength partly to the government's growing tolerance for the current slowdown to avoid reliance on investment-led stimulus plans.

The government's prudent stance was well evidenced last month, when the central bank refrained from pumping massive cash to ease the liquidity crunch in the interbank money market, signalling its determination to discipline the overstretched financial sector.

Although growth in the second quarter will continue to slow, the economists believe the government's full-year target of 7.5 percent is still within reach.

The pessimistic forecast for the second quarter came as China's official purchasing managers' index (PMI) for the manufacturing sector fell to 50.1 percent in June. HSBC's PMI reading, which focuses more on small and medium-sized manufacturers, showed that the sector's production shrank for the first time in eight months.

China is due to release GDP data for the second quarter next Monday.