China to grow 7% in second half of year: PBOC chief

China's central bank governor says the economy could grow 7 percent in the second half of this year, accelerating from the first six months and defying widespread expectations for a slowdown.
The growth forecast by Mr Zhou Xiaochuan goes against widespread expectations of a slowdown.
The growth forecast by Mr Zhou Xiaochuan goes against widespread expectations of a slowdown.

SHANGHAI • China's central bank governor said the economy could grow 7 per cent in the second half of this year, accelerating from the first six months and defying widespread expectations for a slowdown.

The uncharacteristically explicit growth forecast by Mr Zhou Xiaochuan came just days ahead of a twice-in-a-decade Communist Party Congress, where President Xi Jinping is expected to strengthen his grip in a leadership reshuffle.

While China produced forecast-beating growth of 6.9 per cent in the first half, many economists and investors had expected momentum would start to fade later in the year.

Those views are largely predicated on three factors: higher borrowing costs; increasing curbs on home buying to cool soaring prices; and government-mandated shutdowns of some steel mills and factories in coming months to reduce winter air pollution.

But the driving force behind growth has been mainly rising household consumption, Mr Zhou said in remarks published on the People's Bank of China's (PBOC) website yesterday.

"China's economic growth has slowed over the past few years... but economic growth has rebounded this year, with GDP reaching 6.9 per cent in the first half, and may achieve 7 per cent in the second half," Mr Zhou was quoted as saying at the G30 International Banking Seminar in Washington on Sunday.

The government had set a 2017 growth target of around 6.5 per cent. MrZhou's estimate implies an expansion of about 6.95 per cent, topping growth rates in 2015-2016.

Economists had expected growth to ease to 6.8 per cent in the third quarter and 6.6 per cent in the fourth quarter, but the impact of the pollution shut-downs is a major wild card.

China will report third-quarter gross domestic product (GDP) on Thursday. September data so far has shown imports and bank lending grew more than expected, while exports picked up.

On Monday, data showed producer prices jumped 6.9 per cent in September year on year, confounding views that producer inflation had peaked.

A year-long construction boom has helped boost prices for building materials and resources from steel and copper to iron ore, helping to create a reflationary pulse worldwide in commodities markets and manufacturing.

Prices have turned wildly volatile in recent weeks on fears of shortages as Beijing embarks on its biggest environmental crackdown yet to reduce the country's notorious winter smog.

Some steel mills, smelters and chemical plants have cranked up output ahead of curbs on production or outright shut-downs.

Shanghai steel futures surged to a one-month high yesterday along with raw materials iron ore and coking coal, and the ripples are spreading globally, with LME copper futures hitting a three-month high.

Other data on Thursday is expected to reinforce the view that China is still in high gear, with growth in industrial output and retail sales seen accelerating while fixed investment may hold at a roughly steady pace.

REUTERS

A version of this article appeared in the print edition of The Straits Times on October 17, 2017, with the headline 'China to grow 7% in second half of year: PBOC chief'. Print Edition | Subscribe