China's economy is on the right track

Jeremy Stevens, China economist at Standard Bank. [Photo/China Daily]

A1: The most impressive feature in the first half has been the degree of coordination and uniformity from authorities in dealing with imbalances in the financial markets.

This has had the desired impact on the real economy, and is a huge step in the right direction in ensuring that medium-and longer-term growth is placed on a more stable footing.

A2: GDP probably peaked in the first half, so we agree with the broad economic consensus. We believe that restrictions on real estate, the tighter credit environment and slower PPI (Producer Price Index) growth will have an impact on second half figures. Still, I would not be surprised if growth remains above 6.5 percent year-on-year in each of the remaining quarters.

A3: Surprise growth areas will come from the housing market, where demand remains robust, and construction, which could be better than expected.

Slowing factory gate inflation mean real rates will actually rise and this could cause authorities to loosen policy. Also, improved private sector fixed asset investment, which despite being soft, is better than it has been in the last two years.

A4: The government is doing the right thing by delinking from GDP growth toward "quality growth." By focusing on job creation and technological innovation, this will fuel consumption.

Also, dealing with debt and excess capacity are the right things to concentrate on.

We expect this to continue while the government finds ways to deal with parts of the economy that are linked to the old growth model.