Chinese economy mixed by encouraging signs, lingering concerns

BEIJING - While economic indicators offer some hope, structural problems have thrown upbarriers on China's road toward a solid recovery.

Official statistics showed Wednesday an average profit spike of 11.1 percent for majorChinese industrial firms last month, serving as the latest proof of economic stabilization aftera better-than-forecast year-on-year GDP increase in the first quarter (Q1) was released inmid-April.

Despite looming downward pressure, sentiment has been boosted by improvements in a slewof economic data, including strong infrastructure investment and a sharp rebound in exports.

There is increased confidence that the resilience in economic growth will likely persist furtherinto 2016.

"The reacceleration seen in March was more than just a seasonal blip," Bloomberg economistTom Orlik said.

There are already hints that the People's Bank of China is recalibrating its policy stance,focusing less on stimulus and more on controlling financial risks, Orlik said, adding that themarkets are trimming bets on further rate cuts.

Inspired by the new trend, Goldman Sachs Gao Hua Securities has announced a raise in itsforecast for economic growth in the second quarter and the whole year to 7 percent and 6.6percent.

Given the sound results of monetary and fiscal support, a further cut to bank's cash reserveratio will be unlikely during the April to June period, said Song Yu, an economist with thebrokerage, while predicting two cuts of a total 100 basis points in the second half to preventgrowth slip.

The country's GDP expanded 6.7 percent in Q1, narrowing from 6.9 percent in 2015 but stillremarkable given sluggish global recovery. The government has set a growth range between6.5 percent and 7 percent for this year.

However, behind the reassured market sentiment were still deep concerns about structuralproblems, including overcapacity and rising debt level.

Japanese securities trader Nomura warned that the improvement in growth momentum drivenby rebounding property investment may not be sustainable as structural headwinds, such asproperty oversupply, remain strong.

It, therefore, maintained the forecast of a gradual growth slowdown this year to 6.2 percent inthe latest research note.

While China's growth will continue to receive policy stimulus, structural challenges posed byhigh corporate leverage remain unaddressed, rating agency Moody's said.

China's policymakers have pledged to forge ahead with more reforms before these lurkingproblems reveal themselves.

Zheng Lixin, an official with the Ministry of Industry and Information Technology, admittedThursday at a press briefing that despite positive industrial changes, the country still faceschallenges such as weak external demand and structural problems.

"Hardships in some sectors and regions have even exacerbated and quite a few enterprisesare still struggling," he said.

The central government on Tuesday vowed it would rejuvenate the northeast rustbelt, the oldindustrial base, beset by overcapacity and falling traditional industries, considered an epitomeof the economy.