Economic growth to soften but with upside risk

China's overall economic growth will soften in the second half of 2017, albeit more moderately than earlier expected, considering some upside risk from property activity and corporate profits.

The full year forecast GDP growth rate remains at 6.7 percent for 2017, but with data showing resilient growth and stronger credit in the second quarter, there may be some upside risk in the second half of the year, according to a report from the United Bank of Switzerland China.

The expected slowing down of GDP growth in the second half of 2017 can be generally put down to three aspects: softer property sales, a further slowdown in overall credit growth, and elevated funding, said UBS China.

However, resilient growth in the second quarter could also show some positive possibilities. Final full year GDP growth could surpass the estimated 6.7 percent with the potentially softer than envisaged moderation of property activity, or likely robust corporate earnings and cash flow offsetting more of the negative drag from tightening credit conditions.

Meanwhile, the tightening momentum should be less intense in the second half than in the first half of 2017 due to improved regulation coordination and fine-tuning. 

The tightening of local financing rules since the second quarter, and plans to hold local government officials more directly responsible for the creation of new local government debt, implies a more difficult financing environment for local public projects and infrastructure investment in the second half year.