China's GDP growth is projected to reach8.5 percent on a yearly basis in 2021, thanks to the pent-up demand and strongexports, according to the World Bank, which updated the economic forecasts inits regional economic report on June 29.

It marks an upward revision by 0.6percentage points from the World Bank's projections in December 2020, largelydue to stronger-than-expected foreign demand, it said.

The World Bank also predicted that China'syear-on-year GDP growth may moderate to 5.4 percent in 2022, when the low baseeffects dissipate. It reflects the progressive de-risking and deleveragingefforts, policy normalization and diminished support from net exports.

The forecast figures remained unchangedfrom that in the bank's report of "Global Economic Prospects" issuedon June 8 in Washington.

Private domestic demand is going to replacepublic investment and exports to become the prioritized driving force ofChina's recovery, thanks to the improved consumer and business confidence, aswell as better labor market conditions, said the new report.

Meanwhile, economists from the World Bankbelieve that the risk of high and persistent inflation is low in China andupside risks to consumer inflation seem limited at this point, although factorygate prices are sensitive to rising commodity prices.

In China, high upstream inflation partiallytranslated into faster inflation in intermediate goods, but was barely visiblein downstream consumer goods other than food, the report indicated.

"As China's recovery consolidates,macroeconomic policies are expected to shift from accommodative to more neutralsettings," according to Martin Raiser, World Bank Country Director forChina. He suggested that the pace of "policy normalization" should bedecided based on the economic data and the recovery process both in China andabroad.

Several challenges that China faces in themedium term include demographic headwinds, slowing productivity growth and acarbon-intensive production structure, the report mentioned.

Sebastian Eckardt, World Bank LeadEconomist for China, said that over the medium term, policymakers should"redouble their efforts" toward promoting growth-enhancing structuralreforms and steering the economy to a greener, more resilient and inclusivedevelopment path.

A more progressive tax system, investmentsin human capital and stronger social safety nets to reduce income inequalityshould be major areas of China's economic reforms which could help achievehigh-quality growth, said economists from the World Bank.

China'seconomy continues consolidated recovery in May

Economic recovery continued to stabilize inChina during May on better industrial output, consumption recovery and stableemployment levels, according to official data on June 16.

Domestic demand recovered steadily in May,the National Bureau of Statistics said, adding that industrial output grew by8.8 percent on a yearly basis. However, structural support is still needed insome areas to sustain the steady growth for the full year, officials andexperts said.

On a monthly basis, industrial output roseby 0.52 percent, putting the two-year average growth rate at 6.6 percent, theNBS said. Fixed-asset investment, another key indicator, increased by 15.4percent on a yearly basis during the January-May period. Manufacturinginvestment rose by 20.4 percent during the January-May period.

Wen Bin, chief researcher at China MinshengBank, said the investment growth was fueled by robust external demand. With theglobal economic recovery gaining traction since early this year, China'sexports have seen robust growth. Mid-term and long-term credit formanufacturing businesses, too, grew, further underpinning the sector'srecovery.

Retail sales, an indication of consumption,grew by 12.4 percent on a yearly basis in May and by 0.81 percent on a monthlybasis. The country's surveyed urban jobless rate came in at 5 percent lastmonth, compared with 5.1 percent in April.

Fu Linghui, a spokesman for the NBS, saidthat consumption is expected to gather further strength as household incomesare rising, while the speedy vaccination and pro-consumption policies willfurther boost people's spending confidence.

According to Fu, the producer price indexgrowth will not have a major impact on the consumer price index level. China'sPPI rose by 9 percent on a yearly basis in May, the highest level in nearly 13years.

He said that the 1.3 percent year-on-yeargrowth in CPI in May was mainly due to the higher prices for nonfood products.China has abundant grains in stock and pork production capacity has beenpicking up, he said, adding that both will help ensure that the country willnot witness surging CPI levels within this year.

Despite improvements, Fu said that it isworth noticing that uncertainties still exist in global economic recovery andCOVID-19 containment. It is important to maintain the consistency, stabilityand sustainability of macro policies to help alleviate corporate burden, workhard on reforms and innovation and further unleash domestic demand potential toensure that the major economic indicators move within a proper range.

"The economy has maintained steadyrecovery as confidence in investment and consumption has furtherimproved," said Liu Chunsheng, an associate professor of internationaltrade at the Central University of Finance and Economics.

He said that the pace of economic recoveryhas been moderate in May as uncertainties surrounding the COVID-19 epidemicremain, while the government has refrained from launching excessive stimulusprograms that could trigger financial risks.

"Prices of production materials areexpected to remain robust in the future, given the strong overseas stimulus,especially in the United States. It is critical for China to take preemptiveactions such as improving the efficiency of production and accelerating thedevelopment of energy-saving industries," Liu said.

The official purchasing managers index forthe manufacturing sector came in at 51 in May — well above the 50 mark — whilethat of its non-manufacturing sector rose to 55.2 during the same month,according to officials and experts. Given uncertain global demand, stableprices of bulk commodities and further domestic demand are key to continuingeconomy expansion of China, they suggested.

The declining sub-index for new ordersindicates weak market demand, especially slow recovery of domestic demand, saidZhang Liqun, a researcher at the Development Research Center of the StateCouncil, Economic Daily reported on June 1.

Zhang added this requires close attention,and that the lower PMI of small enterprises, compared with that of medium andlarge enterprises, reflects a lack of integration of economic recovery.

Zhang also said given the uncertainty ofoverseas demand, further released domestic demand will stabilize overall marketdemand during an interview with Yicai.com.

"The sub-index for business activitiesand new orders rose back to over 55 and 52 respectively in May, reflectingstability and improvement of the non-manufacturing sector," said Cai Jin,vice-president of the Beijing-based China Federation of Logistics andPurchasing.

"Rising commodity prices require closeattention, despite the steady recovery of the country's economy," said WenTao, an analyst with the China Logistics Information Center. According to theNational Bureau of Statistics, the sub-index of raw materials rose 5.9 percentagepoints to 72.8 in May, with 64.8 percent of enterprises reflecting high rawmaterial prices, hitting a record high.

As the country has taken various measuresto stabilize commodity prices and curb speculation, the expert suggestedmanagement of supply chains and stabilization of supply and demand are keyfactors to boost new demand.

The service industry showed mixedperformance in May, as the sub-index of business activities related toresidential consumptions, such as retail, catering, culture, sports and entertainmentall rebounded from last month, said Tang Jianwei, chief researcher at Bank ofCommunications' Financial Research Center, during an interview with SecuritiesDaily. However, the weak performance of some other service sectors, such aswater transport and capital market services, negatively affected the overallPMI of the service industry.

Compared with increases of the PMI formedium and large enterprises, small manufacturers saw PMI contract to 48.8 inMay from 50.8 in April, indicating a structural differentiation of the economy,said Liu Xuezhi, a senior researcher at Bank of Communications' FinancialResearch Center, as reported by 21st Century Business Herald.

The uncertainty caused by the pandemic inoverseas markets, rising raw materials prices, as well as lower incentives forsmall manufacturer growth have all led to low PMI in small enterprises, saidZheng Houcheng, director of Yingda Securities Research Institute.

The country's industrial output rose by 8.8percent year-on-year in May, putting the two-year average growth to 6.6percent, the NBS said.

Fixed-asset investment rose by 15.4 percenton a yearly basis in the January-May period. On the two-year average basis,fixed-asset investment grew by 4.2 percent in the first five months. In asector-specific perspective, investment in manufacturing surged by 20.4 percentin May, sending two-year average growth from negative growth to 0.6 percent.

Retail sales grew by 12.4 percentyear-on-year in May, sending the two-year average growth rate to 4.5 percent,the bureau said. Retail sales climbed by 0.81 percent in May compared withApril.

The country’s surveyed urban jobless rateticked lower in May at 5 percent, improving from 5.1 percent in April. Chinahas set a target of creating 11 million new urban jobs and a surveyed urbanunemployment rate of 5.5 percent for this year.

Noting that economic recovery remainsstable, the NBS said uncertainties still remain both in the pandemic situationglobally and in economic recovery. The foundation for a continuing economicrecovery at home is yet to be consolidated. More efforts are needed to advanceepidemic containment and economic development in parallel and give targeted supportto tide business over difficulties.

China's major economic indicators includingconsumption and investment showed resilient growth in May, according to marketanalysts.

The country's consumption further picked upin May, led by a spending boom during the five-day May Day holiday, said LiChao, chief economist with Zheshang Securities.

The consumption growth rate in May was 12.9percent year-on-year, with further recovery in the future.

Investments are also expected to maintainfast growth momentum with data pointing to price hikes of raw materials neededfor infrastructure projects.

Lian Ping, chief economist at ZhixinInvestment Research Institute, said that he expects the country's fixed-assetinvestment in the first five months to grow at around 18 percent year on year,slightly slower than the growth rate in the first four months due to highercomparison base last May.

PMIshows economic growth remains on right track

China's manufacturing activities expandedat a slightly slower pace in April, as indicated by the purchasing managers'index falling to 51.1 last month from 51.9 in March, National Bureau of Statisticsdata showed on Friday.

But the index still remained well withinthe expansion territory on a monthly basis, being above the 50-point benchmarkthat separates growth from contraction. The index has remained above 50 for 14consecutive months.

The PMI for large businesses andmedium-sized enterprises stood at 51.7 and 50.3, respectively, both havingdipped from the March levels. The PMI for small firms was 50.8, up 0.4percentage points from March.

"The PMI in April continued to expandon the base of an obvious rebound in March, and the level was higher than theindexes recorded in the same periods of 2019 and 2020. China's economicoperation continued to recover steadily," said Zhao Qinghe, a seniorstatistician at the NBS.

The production sub-index stood at 52.2,down 1.7 percentage points from March, and the new order sub-index was 52, down1.6 percentage points from March, showing a slower expansion of production anddemand in the manufacturing sector.

The PMI for China's non-manufacturingsector moderated to 54.9, down 1.4 percentage points from March.

In particular, the sub-indexes for businessactivities in rail transportation, air transportation and accommodation allcame in at above 65, indicating rapid growth of business volume in the service sector.

"Expansion of the non-manufacturingsector continued to gather momentum. Chinese consumers are showing strongerwillingness to spend as the COVID-19 pandemic is increasingly being broughtunder better control in the country." Zhao said.

On another front, China will lower importtariffs on some primary steel products to accelerate the greener transformationand upgrading of the steel industry, at a time when the country has announcedits aim to peak carbon dioxide emissions by 2030 and achieve carbon neutralityby 2060.

China began applying a provisional zeroimport tax rate on pig iron, crude steel, recycled steel raw materials,ferrochrome on May 1 .It also raised export tariff to 25 percent onferrosilicon, 20 percent on ferrochrome and 15 percent on high-purity pig iron.

Meanwhile, China is lifting the export taxrebate on 146 steel products beginning on Saturday, according to the statement.

Producing primary steel products will leadto relatively higher carbon emissions and pollution, an industry expert said.

"To levy zero tariffs on some importedprimary steel products will help reduce the import costs and expandimports," said Wang Guoqing, director of the Lange Steel InformationCenter.

"A higher export tariff and theremoval of the export tax rebate will restrain exports of certain primary steelproducts, and help fulfill the supply and demand gap in the domestic market. Itwill help domestic producers to cut the output of crude steel and lead theindustry to reduce total energy consumption," Wang said.

"The policies have been an inevitableresult of helping China achieve peak carbon emissions and guide the steelindustry to greener development," she said.

China'smanufacturing PMI edges down to 50.9 in June

The official purchasing managers index forChina's manufacturing sector came in at 50.9 in June, edging down from 51 inMay, indicating the sector has continued to expand steadily.

The reading has stayed above the mark of50, which separates expansion from contraction, as new orders increased fasterwhile production remained buoyant, albeit expanding at a slower speed, thebureau said.

The pressure of surging prices has eased inJune as the sub-indexes of raw material prices and factory-gate prices bothsubstantially declined, but still remained well in expansionary territory at61.2 and 51.4, respectively.

Manufacturers have continued to reduce rawmaterial inventories, cut employment and see longer delivery times in June,despite registering improvements compared with May.

China's non-manufacturing PMI dropped to53.5 in June, compared with 55.2 in May, pointing to a brisk but slowerexpansion in non-manufacturing activities.

The composite PMI, which covers themanufacturing and non-manufacturing sectors, went down to 52.9 from May's 54.2,indicating economic activities have continued to expand but lost some momentum,according to the NBS.

China on June 17 unveiled new rules on themanagement of price indexes for key commodities and services as part of itsongoing efforts to curb unreasonable price swings and maintain stable prices inthe commodity market.

The new rules, which will take effect fromAug 1, will standardize behaviors such as price index compilation as well asinformation transparency and disclosure, according to the National Developmentand Reform Commission, the nation's top economic regulator.

The new rules stipulate that price indexproviders should be independent of the direct stakeholders in the commodity andservice markets covered by the index, and the basic information of the indexproviders, the index compiling plan and other necessary information should befully disclosed.

According to the regulation, authoritiescan conduct compliance reviews and take disciplinary measures fornoncompliance.

Meng Wei, a spokeswoman for the NDRC, tolda news conference in Beijing that the new measures will help ensure stableprices for bulk commodities and other key goods and services and promote thehealthy development of China's price index market.

The new regulation and Meng's remarks cameafter the National Food and Strategic Reserves Administration announced planson June 16 to release copper, aluminum and zinc from the national reserves toboost market supply and maintain stable commodity prices.

"Depending on market changes, we willalso work with relevant parties to release batches of (reserves) in a timelymanner for some time to come, to increase the market supply, ease the strain onenterprises costs and guide the prices to return to a reasonable range,"said Meng.

According to Meng, the NDRC has worked withrelevant departments to take a series of measures to tackle the unreasonableand rapid commodity price gains this year, including increasing export tariffson certain steel products, holding meetings to urge key enterprises in thesector to maintain normal market order and establish a regular consultationmechanism for joint supervision of both futures and spot markets.

"The series of measures have graduallytaken the heat out of market speculation, and prices of some commodities suchas iron ore, steel and copper have started returning to normal," saidMeng. "The NDRC will closely monitor changes in the market, strengthenregulation of both futures and spot markets and maintain the normal order ofthe market."

Zhou Maohua, an analyst at China EverbrightBank's financial market department, said over-speculation has been the mainreason for higher prices.

"China is in urgent need of a keycommodity and service price index with independent operation, scientificcompilation rules and transparent information disclosure,"Zhou added."The commodity and service price index is one of the important referencesfor investors to make investment decisions. With the new regulation, investorsmay gradually return to rationality, which will help curb unreasonable priceswings in the market and improve the effective allocation of marketresources."

Zhou expects most bulk commodity prices tostabilize gradually due to the steady recovery of the global economy and thetightening monetary environment.

According to him, more efforts need to bemade to boost supplies, keep prices stable, increase support for some hard-hitenterprises with development prospects and prevent rapid price increases frombeing passed on to consumers.

Tao Jin, deputy director of themacroeconomic research center of the Suning Institute of Finance, said therecent commodity price rally has led to an increase in production costs forChinese companies in some mid－and downstream manufacturing industries.

"More efforts should be made toincrease domestic supplies, crack down on market violations and strengthenChina's cooperative development of various foreign mineral resources. Domesticsteel and iron companies and other manufacturing and extraction companies needto ramp up efforts to expand globally and increase overseas investment,"Tao said.

Economicrecovery set to get further policy boost

China's economic policies will remaingenerally stable to solidify the recovery in the second half of this year, andthe policy focus may increasingly shift toward curtailing risks at home andabroad, according to policymakers and advisers.

As strong economic growth momentumcontinues, policy measures should prevent external shocks to improve China'sresilience and stabilize the overall leverage level, in case global economicconditions change, said economists who shared the policy outlook with ChinaDaily on June 29.

In the second half of the year, monetarypolicy normalization in China should continue to proceed cautiously, unlessinflation moves well above target and inflation expectations become unanchored,Sebastian Eckardt, the World Bank's lead economist for China, said on June 29.

His comment was based on an updatedforecast from the World Bank, which sees the world's second-largest economyreaching GDP growth of 8.5 percent in 2021, thanks to pent-up demand and strongexports.

The forecast marks an upward revision of0.6 percentage point from the World Bank's projections in December, largely dueto stronger-than-expected foreign demand, the bank said in a report.

China's consumer price inflation isexpected to remain below target this year, despite the recent surge in importedraw material prices and firming domestic demand, the bank predicted, addingthat the rise in inflation is most likely going to be transitory in the absenceof excessive wage growth.

Yi Gang, governor of the People's Bank ofChina, the central bank, chaired the bank's quarterly monetary policy meetingon Friday.

Policymakers and advisers agreed that themonetary policy should remain prudent, flexible and targeted, and should keepliquidity ample at a reasonable level, according to a meeting statementreleased on June 28.

It was seen as an important meeting for settingthe monetary policy tone for the second half, said analysts. "According tothe meeting's statement, it is expected that the monetary policy stance willremain stable and neutral, and it is difficult to see additional easing in thefollowing months," said Ming Ming, a senior researcher at CITICSecurities.

In recent months, the policy mix has beenreflected in tight to neutral financial conditions, said Shaun Roache,Asia-Pacific chief economist with S&P Global. "We expect policies toremain broadly unchanged, albeit with some targeted tightening, especially inthe property sector."

Roache does not expect that inflationarypressures in China will force policy rate hikes because the pass-through fromhigh producer price inflation to consumer prices is typically weak.

China has already started to normalizepolicies, and in terms of monetary actions, the central bank allowed interestrates to rise and liquidity to tighten, which has cooled credit growth andrestrained leverage, according to analysts.

"As the recovery solidifies, we expectthe policy focus to increasingly shift toward deleveraging. Risks associatedwith high corporate leverage and inflated property markets will need to beclosely monitored," said Eckardt, of the World Bank.

The PBOC meeting highlighted prevention ofexternal shocks as well as keeping the macro leverage level stable. It alsocalled for adjustments in the measure for setting the upper limits of depositrates, research tools for supporting carbon emission reduction, and improvedrisk prevention capacity when the financial market opens up further.

The prospect of more hawkish monetarypolicy in the United States may cause some near-term volatility in financialmarkets and cross-border capital flows, but associated risks should bemanageable, unless the policy adjustment is much faster and sharper than currentlyexpected, Eckardt said.

So China may see more volatile two-waycross-border capital flows as financial markets continue to adjust to thevarying speeds of COVID-19 pandemic recovery and policy outlooks in majoreconomies, he added.

Reflecting progressive efforts to reducerisks and deleverage, as well as policy normalization and diminished supportfrom net exports, China's year-on-year GDP growth may moderate to 5.4 percentin 2022 when the low base effects dissipate, the World Bank predicted.

China has policy space to act at thecentral level, and policymakers should be ready to use it in case privateinvestment and consumption demand remain sluggish and external imbalancesfurther increase, the bank's economists suggested.