| China's economic growth rebounded to 7.5 percent in the second quarter of 2014, signaling a steady recovery for the world's second largest economy. In the first six months, the Chinese economy expanded 7.4 percent.
Analysts expect GDP growth to further edge up in the second half of the year and say the whole-year growth target of 7.5 percent is still within reach. Meanwhile, they warn of some potential risks including property market correction, stubborn overcapacity and mounting local government debts.
China now has to walk a fine line between stepping up credit support for the economy, especially cash-starved smaller firms that are vital for job creation, while avoiding new local debt and property risks. In the long run, reforms are badly needed when it comes to arresting economic slowdown, they say.
"The Chinese economy showed good momentum for stable and moderate growth in the first half," said Sheng Laiyun, spokesman of the National Bureau of Statistics (NBS) at a press conference on July 16.
Sheng highlighted a pick-up in economic growth in the second quarter, encouraging job data and improvements in structural adjustment.
However, he also warned against blind optimism, citing complicated domestic and international economic conditions.
"Traditional industries are in a period of adjustment and such 'growing pains' could continue for some time, so the economy still faces some downward pressures," he said.
Part of that pressure has stemmed from the housing market adjustments, he added. Sheng said China will pursue growth momentum in reform, innovation, and the adjustment of its economic structure as well as the transformation of the nation's growth model.
A report released by Beijing-based Renmin University of China forecasted that the Chinese economy can meet its growth target of 7.5 percent this year, driven by mini-stimulus measures and a favorable international environment.
Xu Hongcai, a senior economist at China Center for International Economic Exchanges, said GDP growth will further pick up in the third quarter and predicted that realizing the full-year target won't be a problem.
Jia Kang, Director of the Institute for Fiscal Science Research, forecasted that China's ongoing urbanization will support the country's growth for at least two decades.
"The Chinese Government now has more tolerance for slower growth. On the premise of stable employment situations and consumer prices, the government wants to wipe out outdated capacity with the force of the market amid economic slowdown. Improvement in the quality of growth is more important than the speed," Jia said.
Improved structure
A positive change in China's industrial structure and consumption was one of the most encouraging signs in the first-half growth data.
It appears China's restructuring efforts have paid dividends. The country's industrial structure is further optimizing, as the proportion of the service sector in total GDP is continuously increasing.
In the first half of 2014, service sector output accounted for 46.6 percent of the GDP, 1.3 percentage points higher than the same period last year. The proportion is 0.6 percentage points higher than the manufacturing sector, signaling a shift toward an economy driven by the service sector.
Meanwhile, domestic demand is playing a larger role in driving growth.
In the first half of this year, consumption contributed 4 percentage points to the GDP growth, ahead of 3.6 percentage points from investment, the NBS said. This trend is in line with China's pledge to reduce dependence on investment and exports in favor of consumption. Exports, on the other hand, dragged down GDP growth by 0.2 percentage points.
This was boosted by a rise in resident income, said Sheng, the NBS spokesman. He also pointed out that the income gap between urban and rural households was further narrowed in the first six months.
During the first half, retail sales grew 12.1 percent year on year to 12.42 trillion yuan ($2.02 trillion), quickening from the 12-percent growth registered for the first quarter, the NBS said. The actual growth rate was 10.8 percent with inflation deducted.
Acceleration of retail sales growth was enhanced by a strong performance in the online sector. In the first six months, online sales witnessed strong growth, surging 48.3 percent year on year to 1.14 trillion yuan ($183.8 billion).
Shen Jianguang, chief economist at Mizuho Securities Asia Ltd., said consumption has played a greater role in lifting the economy than investment.
"This is a major highlight of the half-year data. Consumption is gradually becoming the biggest driving force of GDP growth. China's restructuring efforts in past years have paid off."
Keeping watch
A report from Bank of China's Institute of International Finance said China still faces much downward pressure from the adjustment of the property sector, local government debts and overcapacity.
"In the future, China's fiscal policy will be more proactive to maintain stable growth while focus will be put on areas that can lift the economy in the short run and also help adjust economic structure in the long run. China's future monetary policy will be steady and yet appropriately loose, but not too loose. The scope of targeted monetary loosening may be broadened," read the report.
Many economists believe the slowing property sector poses the biggest risk to the economy.
Following a strong performance in 2013, China's real estate market has shown signs of cooling down.
Average real estate prices in the country's 100 biggest cities fell 0.5 percent in June from May, the second consecutive monthly drop this year, according to the China Index Academy Ltd., a Beijing-based research institute wholly owned by SouFun Holdings Ltd. In May, average prices edged down 0.32 percent from April.
The latest data from the NBS show that growth in real estate investment slowed in the first half of 2014 while sales and new construction fell. Real estate investment grew 13.1 percent year on year with inflation deducted - 2.7 percentage points lower than the first quarter. During this period, new construction in residential property declined 19.8 percent year on year. Sales of commercial residential housing fell 7.8 percent year on year in terms of floor space and fell 9.2 percent year on year in terms of value.
"Better-than-expected second-quarter data don't mean China is faced with fewer risks. A cooling property market is casting a shadow over the broader economy," read a report from Société Générale.
Wang Qing, President of Shanghai Chongyang Investment Management Co. Ltd., said China's property sector has lost its investment value.
"If home prices drop sharply, the highly leveraged property sector will suffer from capital chain break, ending with a burst in the real estate bubble and a hard landing for the wider economy," Wang warned.
Wang Tao, chief China economist at UBS, said this round of housing price drops was not triggered by policy changes but by market forces.
"Compared with other assets, property has lost its attraction as an investment channel. The turning point for China's property sector has come. Even if local governments lift home purchase curbs, it won't make much difference," she said.
Julian Evans-Pritchard, a China economist at Capital Economics, said the downward pressure from a cooling property market can be offset by government-led infrastructure construction and a healthier external economic environment.
Ren Ninghao, an analyst from CIConsulting, said traditional industries face many obstacles in upgrading their businesses while emerging sectors are hardly strong enough to act as the main pillar of the economy.
"The Chinese Government should forcefully push forward reforms on state-owned enterprises, fiscal and taxation reform and the adjustment of government functions," Ren said.
Major Macroeconomic Indicators in the First Half
Consumer price index (CPI), the main gauge of inflation, rose 2.3 percent year on year. Producer price index (PPI), which measures inflation at the wholesale level, contracted 1.8 percent year on year.
» Foreign trade increased 1.2 percent year on year to $2.02 trillion. Exports increased 0.9 percent to $1.06 trillion while imports increased 1.5 percent to $959 billion.
» Inward foreign direct investment (FDI) into the Chinese mainland stood at $63.33 billion, up 2.2 percent year on year.
» Outward FDI from the Chinese mainland stood at $43.34 billion, down 5 percent year on year.
» Value-added output of industrial enterprises above a designated size - principal business revenue of more than 20 million yuan ($3.15 million) a year - grew 8.8 percent year on year.
» Fixed assets investment totaled 21.28 trillion yuan ($3.43 trillion), up 16.3 percent year on year with inflation deducted.
» Retail sales totaled 12.42 trillion yuan ($2.02 trillion), up 10.8 percent year on year with inflation deducted.
» The per-capita disposable income of urban residents stood at 14,959 yuan ($2,410), up 7.1 percent year on year with inflation deducted.
» The per-capita cash income of rural residents stood at 5,396 yuan ($870), up 9.8 percent year on year with inflation deducted.
» New yuan-denominated loans amounted to 5.74 trillion yuan ($924.8 billion), 659 billion yuan ($106.17 billion) more than the same period last year.
» As of the end of June, M2, a broad measure of money supply that covers cash in circulation and all deposits, reached 120.96 trillion yuan ($19.49 trillion), up 14.7 percent year on year.
» China's fiscal revenue rose 8.8 percent year on year to 7.46 trillion yuan ($1.21 trillion). | 
