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Factory overcapacity will drag on economic growth in the second half. Photo: Reuters

Pressure on Chinese economy to persist in second half, says China's central bank

Uneven demand, slowing investments expected to keep growth sluggish

Downward pressure on the economy will persist in the second half of the year as growth in infrastructure spending and exports is unlikely to pick up, a senior central bank official was quoted as saying.

Mainland companies are not optimistic about business prospects according to the central bank's second-quarter survey, Sheng Songcheng, the director of the statistics division of the People's Bank of China, was quoted as saying by the on Saturday.

Pressured by uneven domestic and export demand, cooling investment and factory overcapacity, economic growth is expected to slow to around 7 per cent on the mainland this year, the lowest in a quarter of a century, from 7.4 per cent last year.

A plunge in the country's share markets since mid-June has added to worries about the economy, and reinforced expectations that policymakers will roll out more support measures in the coming months to avert a sharper slowdown.

The central bank has already cut interest rates four times since November and repeatedly loosened restrictions on bank lending in its most aggressive stimulus campaign since the global financial crisis.

Sheng warned about the risks of local government debt, saying that 2 trillion yuan (HK$2.5 trillion) in bond swaps might not be able to fully cover maturing debt, according to the report.

Sheng said the central bank needed to step up the monitoring of local government financing vehicles given the downturn in the property market and limited local government revenues.

The senior official also said he expected second-quarter net profit growth for banks to fall, adding that banks' exposure to risk "had become clearer".

But he said the real estate market could rebound in the second half and provide support for the economy.

Sheng said he was still expecting economic growth this year of around 7 per cent, an inflation target of around 1.5 per cent and growth of M2 - a broad-based measure of money supply - of around 12 per cent.

Central bank economists said in June that they expected growth to pick up modestly in the next six months as previous policy easing measures started to take effect and the housing market stabilised.

But other analysts say that view is unduly optimistic, pointing to huge inventories of unsold homes and high local government debt that is curbing their ability to spend on infrastructure projects.

Growth in mainland manufacturing companies unexpectedly stalled last month as demand at home and abroad weakened, an official survey showed on Saturday.

On Thursday, the Politburo promised to step up "targeted" adjustments to economic policy to foster stable growth in the world's second-largest economy, media reported.

This article appeared in the South China Morning Post print edition as: Pressure on economy will persist: central bank
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