HSBC revises China growth forecast to 7.5%
July 21, 2014, 10:36 am

A farmer reaps wheat in the fields in Zhangshanzi Township, east China’s Shandong Province, May 27, 2014 [Xinhua]

HSBC said in its report that China’s economic recovery has been stronger than expected but has advised continued reforms to curb shadow bank lending.

China’s GDP growth in the second quarter “surprised on the upside relative to our forecast” owing to stronger-than-expected government support measures, HSBC Chief China Economist Qu Hongbin said in a report on Monday.

The Chinese economy expanded 7.5 per cent year on year and 2 per cent quarter to quarter (seasonally adjusted) in the second quarter. In the first half of 2014, China’s economy expanded 7.4 per cent from a year earlier.

Activity data suggests that most of the improvement came in June, with monthly fixed asset investment and industrial production growing 17.9 per cent and 9.2 per cent, respectively.

Government policies, particularly fiscal policy, will likely be even more supportive in the second half as it is traditionally the spending season, Qu said. “We expect the cumulative impact of easing measures to continue filtering through and policymakers to maintain their accommodative stance.”

Despite revision of the 2014 GDP forecast, Qu said HSBC’s broad outlook on the Chinese economy remains unchanged.

HSBC advised continued reform measures to expand China’s municipal bond market, regulate shadow bank lending and restructure state-owned enterprises.

The Chinese government is struggling to curb shadow banking. Bloomberg data said last week Chinese banks’ sales of bonds backed by loans have surged 22-fold this year. Chinese banks have issued 78.7 billion yuan ($12.7 billion) of such securities this year compared to 3.6 billion yuan in the same period last year.

The main downside risk to HSBC’s forecast for China remains the property sector. Although the contraction in sales eased in June, funding and investment growth remained depressed.

TBP and Agencies