STOCK MARKET NOSEDIVE
In June, the sudden stock market rout hit the country by surprise, posing challenges for policymakers already busy with bolstering growth.
At its worst, the key Shanghai stock index plunged by more than 30 percent from its June 12 peak. Before the freefall began, the Shanghai composite had risen by 152 percent since July 2014 and nearly 60 percent since the beginning of this year.
The frothy market conditions, in addition to authorities' crackdown on margin financing, are thought to be major factors that triggered the massive sell-off.
To prevent the market from threatening overall financial stability, the government has stepped in with various measures to save the market, including pouring in funds and restricting futures trading on a major small-cap index.
China's central bank reiterated that it will support the liquidity needs of the China Securities Finance Corporation Limited (CSF), the national margin trading service provider.
The raft of policy support has, to some extent, restored market confidence, with the key index rising for several consecutive days after the concerted moves.
Regarding the impact of the stock market rout on the broader economy, UBS said in an earlier report that it does not anticipate the turmoil will lead to a systematic problem for China's financial system, with only a limited impact on the real economy.
OUTSIDE CHALLENGES
Adding to the economic challenges is the worry that the slowdown will put the country on less stable ground when facing threats from global financial turmoil, including the debt crisis in Greece and interest rate increase by the U.S. Federal Reserve.
The Fed Chair Janet Yellen said on Friday that she expected "it will be appropriate at some point later this year" to raise the benchmark interest rate as the U.S. economy continues to gain strength.
The expectation for higher U.S. interest rates and declining Chinese interest rates sparked concerns about capital outflows from China, which may threaten the country's financial stability and complicate the central bank's effort to support the economy with lower interest rates.
However, Chinese Finance Minister Lou Jiwei has dispelled such concerns, saying the U.S. plan to raise interest rates may lead to a small amount of capital outflows from China, but the impact will not be significant.
"China's economy is relatively large and its economic structure is more integrated. It has not fully abandoned capital controls and is still wary of short-term capital flows," Lou said.
