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UPDATE 1-China growth to gain pace in H2-industry ministry
July 25, 2012 / 3:47 AM / 5 years ago

UPDATE 1-China growth to gain pace in H2-industry ministry

* China economy set for H2 pick-up as policies gain traction

* Industry still facing downward pressure at home and abroad

* Latest Reuters poll forecasts 2012 growth of 8 pct (Adds quotes, context)

BEIJING, July 25 (Reuters) - China’s economic growth will likely pick up in the second half of 2012 as a raft of policies rolled out to boost economic activity gain traction, the Ministry of Industry and Information Technology said on Wednesday.

However, the ministry warned the world’s No 2 economy still faces severe challenges at home and abroad and that authorities should not underestimate the impact on the corporate sector from slowing demand.

“We can see relatively clear signs from the industry sector that the economy is stabilising,” Zhu Hongren, the ministry’s chief engineer, told a news conference.

“But we still need to bear in mind that the foundation of stability in the industry sector is fragile and the downward pressure is still with us,” Zhu said.

Beijing has followed a programme of policy “fine-tuning” since the autumn of 2011, cutting interest rates, easing rules on bank lending, fast-tracking fiscal spending and cutting taxes and red tape for business.

The policy response has left the world’s second-biggest economy on course for a soft landing, according to a new report from the International Monetary Fund published on Wednesday, but still facing downside risks from stiffening global headwinds and potential spillover effects if Europe’s debt crisis deepens.

China’s economy expanded at its slowest pace in more than three years in the second quarter of 2012, growing 7.6 percent from the same period a year earlier - just a whisker above the official government target for the year of 7.5 percent.

Quarter-on-quarter, the data showed a sequential improvement, as did a clutch of accompanying indicators, though the economy remains on course for its lowest full year of growth since 1999.

The latest benchmark Reuters poll forecasts China’s growth to hit 8 percent for the full year, down from the 8.4 percent market consensus three months earlier.

China’s flash factory purchasing managers index rose in July to its highest level since February, boosted by a pick up in output and signs of improvement in new export orders that offered relief to struggling financial markets.

Still, the HSBC Flash China manufacturing purchasing managers index (PMI) released on Tuesday showed activity shrank for the ninth month in a row, while the employment sub-index fell to a 40-month low.

Analysts polled by Reuters earlier this month expect one more cut to interest rates of 25 basis points and 100 bps of cuts to banks’ required reserve ratios by the end of the year. (Reporting by Aileen Wang and Kevin Yao; Editing by Nick Edwards & Kim Coghill)

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