Chinese economy to gain momentum in 3rd quarter

WASHINGTON - The official data shows China's gross domestic product (GDP) increased by 7 percent in the second quarter on an annual basis, and the economic growth is expected to "gain more momentum" in the third quarter as policies take effect, said a forecast Wednesday.

"The 7 percent growth in the second quarter is in line with our expectations", Guo Feng, chief China economist with the Institute of International Finance (IIF), said in the latest IIF forecast on Wednesday.

Guo noted that "the rapid growth of the financial sector driven by the bull stock market in the first half of the year and the picking up of the real estate market" are the two major forces to support the growth in the second quarter.

"As the policies to stabilize the economy continue to take effect, Chinese economy is expected to gain more momentum in the third quarter," Guo said.

Guo pays much attention to the policy which allows the local governments to replace their debt. "Along with the rapid advance of local government debt replacement, local infrastructure investment is expected to rebound in the second half of the year," he said.

"As Chinese economy gradually stabilizes and gets better, it will also benefit the world economic growth," said Guo.

In addition to a better economic outlook, "the downside risks for Chinese economy are still there," said Guo. "The foundation for economic stabilization is not very solid."

He believed that the Chinese government will maintain an accommodative macroeconomic policy in the second half of 2015 to boost economic growth.

Guo said China's economic development has reached "a critical period of transitioning from the old driving force to the new", which needs "structural reform that cannot be completed overnight".

"To keep the economic growth in a reasonable range, the Chinese government must continue to promote decentralization and innovation to produce new points of economic growth," said Guo.

He praised the "One belt and One Road" initiatives proposed by the Chinese government, saying it offers an important opportunity for China's economic restructuring by optimizing and upgrading industrial structure, and turning the comparative advantage into competitive advantage.

"The infrastructure in some undeveloped regions covered by the land-based Silk Road is very weak and needs financial support," said Guo, pointing out that government fund only is not enough.

"We must strive to broaden the financial cooperation and actively encourage social capital to participate," Guo said.

"Making careful risk assessment for the countries covered by the initiatives is also necessary to reduce investment risks and increase returns," said Guo.