Although the Chinese economy recorded 7.4-percent growth for 1Q14 – surpassing Bloomberg poll of analysts foreseeing 7.3 percent expansion YoY, that performance does not, in fact, denote noteworthy progress there.Part of the reasons is that the country's latest economic indicators in March 2014 – Manufacturing Purchasing Manager index, investment in durable assets and exports – still illustrated fading economic momentum in China. This year, progress on economic reforms will be quite crucial as to whether or not the state will be able to achieve economic stability beyond only high GDP growth which can be accomplished by just implementing short-term stimuli.
We believe that the approaches pursued by the Chinese government this year will be a hybrid of economic restructuring and maintenance of an appropriate GDP growth rate. This means that the economy there will probably expand about 7.4 percent, close to its target at around 7.5 percent.
Challenges facing the Chinese economy in 2014 are plentiful, especially the side effects of industrial reforms that may impede expansion of the sector, as well as stringent controls imposed on local government investments, thus likely slowing overall domestic investment. Economic expansion in China may also fall off as a result of financial sector restructuring that will likely pose a threat to liquidity in its shadow banking system, thereby affecting the entire business sector.
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