China's economy expected to grow 6.5% to 6.7% in Q2

OUTLOOK STILL ENCOURAGING: We see China as a two-track economy - manufacturing is obviously under- performing because of global demand conditions. On the services side, we still see pockets of growth, in particular, e-commerce is still doing very wel
OUTLOOK STILL ENCOURAGING: We see China as a two-track economy - manufacturing is obviously under- performing because of global demand conditions. On the services side, we still see pockets of growth, in particular, e-commerce is still doing very well in China. - MS SELENA LING, OCBC Bank's head of treasury research and strategy, on China's economic outlook

China's economic slowdown is expected to continue with a projected expansion of 6.5 to 6.7 per cent in the second quarter due for release tomorrow, say economists.

Last year, the mainland's gross domestic product (GDP) grew 6.9 per cent - its slowest in more than two decades. In the first quarter, growth was 6.7 per cent.

"China's economy is still decelerating," said OCBC Bank's head of treasury research and strategy, Ms Selena Ling. "There is still a lot of speculation about how they are managing their currency fixing mechanism; about what they're trying to do in terms of the economic reforms - whether they can stage a soft landing in both the property and credit bubble."

Overall, the outlook for China remains encouraging, said Ms Ling.

"We see China as a two-track economy - manufacturing is obviously underperforming because of global demand conditions. On the services side, we still see pockets of growth, in particular, e-commerce is still doing very well in China," she said.

"If you look at the one- to three-year time frame, you're probably looking at the lower half of the 6 to 7 per cent range (of GDP growth). I think that fears of a very hard landing - 5 per cent or less in the short term - appear to have been mitigated."

China's growth may have slowed relative to its impressive double-digit growth in the past decade, but it remains a formidable economic giant as Beijing steps up efforts to sustain the country's global leadership in trade and industry, said DBS chief economist David Carbon.

"Urbanisation and inland development is where the next phase of growth has to come; to get off the eastern seaboard and to start to move inland - the 'One Belt, One Road' policy, urbanisation policy, geographic diversification, greater linkages between the inland and the economies of the region," Mr Carbon explained.

He said the package of structural reforms China is working on is about sustainability, trying to keep incomes rising in an effort to avoid the middle-income trap.

Globally, economic gravity is moving from the West to the East with the shift in economic power to Asia, said Mr Carbon, who has tracked the growth trajectory of Asia's emerging markets led by China.

Despite the moderate economic slowdown in China, he said the East Asian country remains a key driver of the global economy.

"With Asia supplying most of the world's growth - two-thirds of this is coming from China. China dominates the growth picture, not just in terms of the speed, but in the number of dollars of growth being put out there," said Mr Carbon.

Tapping new sources of technology and innovation to sustain China's long-term growth is vital, said CIMB economist Song Seng Wun. "China requires resources on all fronts, be it natural resources, skills or technology, so the fastest way is for them to go out there and buy businesses, to develop networks and connectivity to bring resources from around the world to China," said Mr Song.

"This will allow Chinese companies to leapfrog in their development... compared to other companies which have taken many decades to accomplish their goal of turning into multinational, global companies."

Mr Song said China has anchored its presence in the Asean region through investments in infrastructure, and through mergers and acquisitions. "It's not by accident that China is building industrial parks in Thailand and Malaysia, essentially allowing them to capitalise on opportunities this region can produce."

A version of this article appeared in the print edition of The Straits Times on July 14, 2016, with the headline 'China's economy expected to grow 6.5% to 6.7% in Q2'. Print Edition | Subscribe