Experts: Economy likely to bounce back in 2nd half

Profits at China's industrial companies fell in the first seven months of this year as the country grapples with pandemic-related disruptions, high temperatures and insufficient domestic demand.

Despite pressures from renewed COVID-19 outbreaks and a complicated and grim international environment, experts said that the economy will likely bounce back in the second half of the year as a result of new stimulus measures taking effect and the gradual normalization of activity.

They called for more efforts to consolidate the recovery and expected to see strong fiscal stimulus, notably forceful infrastructure spending, as well as targeted monetary easing to support credits to small and medium-sized enterprises, real estate and infrastructure financing.

Their comments came as industrial companies' profits declined 1.1 percent year-on-year in the first seven months, data from the National Bureau of Statistics showed on Saturday, following 1 percent growth in the first six months.

Yin Yue, an analyst at Shanghai-listed Hongta Securities, said industries such as coal mining, electricity and auto manufacturing saw notable profit growth in July amid rising power demand, resumption of work and production, and policy stimulus, while a wide range of other sectors saw slowing growth in profits due to high costs and shrinking demand, dragging down the overall growth of industrial profits.

Looking ahead, while the growth in industrial profits may continue to be dragged down amid downward pressures in the following months, the economy will likely be fueled by the country's new stimulus policies as well as follow-up measures to stabilize the real estate market, drive infrastructure development and spur consumption, Yin added.

A recent executive meeting of the State Council chaired by Premier Li Keqiang decided that China will adopt follow-up policies on top of the policy package for stabilizing the economy, including an incremental quota of at least 300 billion yuan ($43.7 billion) in policy bank financing tools and a new quota of over 500 billion yuan in local government special bonds to be fulfilled before the end of October.

Ye Yindan, a researcher with the Bank of China Research Institute, said that the government aims to accelerate the recovery of demand and promote employment stability, adding that those efforts will help drive effective investment worth over 1 trillion yuan and shore up growth in infrastructure investment.

Ye said that China's economy will likely stabilize quarter by quarter in the second half due to better control of the pandemic, saying that more efforts should be made to further spur consumption, accelerate the implementation of infrastructure projects and stabilize the real estate market.

In terms of monetary policy, experts said it is still possible for China to further cut interest rates to bolster the economy, but the space for such big easing moves has narrowed as monetary tightening in the United States might be kept at a rapid pace.

Kang Yong, chief economist at KPMG China, said there remains policy space for China to cut interest rates following one in August, given the necessity of strengthening support for the country's economic recovery, but the room for further rate cuts by the People's Bank of China was likely to be "not big".

While the PBOC delivered a 10-basis-point interest rate cut in its policy benchmark medium-term lending facility on Aug 15, the US Federal Reserve might raise interest rates by 75 basis points in September, following hikes of the same amount in June and July, experts said.

Fed Chairman Jerome Powell declared on Friday the central bank's "unconditional" commitment to delivering price stability even as such measures will bring some pain to households and businesses.

Yang Haiping, a researcher at the Central University of Finance and Economics' Institute of Securities and Futures, said China's monetary policy may focus on unleashing the potential of existing tools and unveiling additional structural support, given that the room for interest rate cuts has narrowed.