China treads cautiously to rebalance economy

Despite all the heightened attention and occasional panic over China's economic health, authorities in the world's second-largest economy have so far remained confident of its ongoing rebalancing act.

On Tuesday, the Political Bureau of the Communist Party of China (CPC) Central Committee pledged at a meeting to keep the economy growing steadily in the second half of this year, while promising to fine-tune policies when necessary.

"The macro policy should be stable, the micro policy should be flexible and the social policy should support the bottom line. All of them should be coordinated," read the statement released after the meeting.

The comments were seen as a reaffirmation that a stable environment is necessary for pushing ahead with reforms for long-term sustainable growth.

"A stable policy environment would not only allow time for the market to adjust itself, but also help create a favorable condition for reforms and avoid drastic fluctuations in market expectations," said Kuang Xianming, director of economic research with the China Institute for Reform and Development.

Drastic policy changes are unlikely unless there are unforeseeable external or internal shocks, he added.

China's economy expanded 7.6 percent in the first half of the year, slightly above the annual 7.5-percent target set for 2013, and prospects for the second half remain complicated given the sluggish external market, weak domestic strength, persisting overcapacity and growing financial risks.

Chinese leaders have so far demonstrated greater tolerance for slower growth in their efforts to switch the country's growth model from its dependence on credit expansion and manufacturing toward one driven by consumption, innovation and services.

Instead of initiating a massive stimulus program again to lift the economy, the authorities are moving cautiously to steady growth while driving through reforms in which President Xi Jinping has called for "greater political courage and wisdom."

Since taking office in March, the new government has been proceeding with reforms in a wide range of areas, including delegating administrative power to lower levels and easing controls in the financial sector.

In July, China's central bank lifted controls on bank lending rates, in a clear signal of the government's determination to push forward market-oriented reforms.

Later, the government took several small steps, such as cutting taxes for small and micro businesses and eliminating outdated capacities to stimulate while restructure the economy.

"If growth slips under 7.5 percent, the government may lend more policy support focusing on balancing growth, reform and restructuring," predicted Lian Ping, chief economist at the Bank of Communications.

In Tuesday's meeting, the central authorities said China will "keep reasonable investment growth" and promote "steady and healthy development in the property market," which boosted property stocks the following day.

Lian said the CPC leaders' comments showed that, even though China wants to wean off over-reliance on investment, it cannot cut investments too fast as a freefall in the sector will threaten growth.

China's fixed-asset investment, a measure of government and private spending on infrastructure, grew 20.1 percent during the first half of 2013, down 0.3 percentage points from the same period last year.

Considering the government's intention to maintain stable investment growth and possible policies to bolster consumption, Lian forecast growth for the whole year will be basically stable though downward pressures remain in the second half.

"Growth may slow to below 7.5 percent in the third and fourth quarter, but full-year expansion is likely to be at around 7.5 percent," he said.

Believing China is still well-positioned to carry out further reforms in the second half of the year, Kuang Xianming said the upcoming plans due to be released at a plenary meeting of the CPC Central Committee will lay an important foundation for development in the next five to 10 years.