Country Economic Forecasts > China

The modest softening in industrial production growth in July hid a sharper fall in demand momentum, largely caused by slowing fixed asset investment (FAI).We expect economic growth to remain under pressure in the rest of 2016 from softer real estate construction and continued weak corporate investment. While consumption should remain resilient, it cannot completely offset the impact of weaker investment. The subdued outlook for organic growth means that, if the government wants to meet its overly ambitious GDP growth target of at least 6.5%, it will have to continue to rely on stimulus.So far, ensuring rapid credit growth has been a key element of the government's policy stance. However, because of the lack of appetite among corporates especially private firms to invest, the current credit expansion is having a limited and declining impact on growth. Also, while China may not be on the cusp of a financial crisis, the current pace of credit growth is clearly unsustainable. We do not envisage a rapid policy shift. But as the limits to credit-based stimulus are becoming more obvious, the government may try to rely (even) more on fiscal policy stimulus.