Mainland set for quality growth

The Chinese mainland economy will see 'slower but higher quality growth" in the second half of this year, Industrial and Commercial Bank of China International said, retaining its 6.7 percent full-year prediction for GDP growth. In the first quarter of this year economic expansion hit an 18-month high of 6.9 per-cent year-on-year. Cheng Shi, chief economist of ICBC Inter-national, noted the rebound was mainly driven by the fis-cal, monetary and exchange-rate easing expansion in the fourth quarter of year 2015; this boost is not expected to continue beyond the second quarter of this year. Financial tightening mows such as deleveraging should lead to a pull-back in the sec-ond half But deeper supply-side reform and improved consumption — with internal consumption being the main growth driver amid a weak global recovery — will lead to higher quality growth, Cheng said at a media briefing on Monday. He believed the wan would stabilize and there was little chance the currency would weaken beyond 7 per US dol-lar. He estimated the yuan would appreciated slightly, from 695 to 693. Qiu Micheng, strategist at ICBC International, said the lender was prudently optimis-tic about the H-share market and bullish on the A-share market Hong Kong's stock market was boosted by global capital flows, but faced great pressure as the world's major econo-mies adjusted monetary poli-cy, he commented. Cheng agreed, saying down-sizing of the United States Federal Reserve's balance sheet would start gently in the fourth quarter of this war and gain traction in the following two years. He predicted down-sizing of $600 billion to $800 billion over two years. For the mainland market, to offset the impact of rising interest rates followed by a flurry of stringent financial regulations, Qiu pointed out the government would intro-duce proactive fiscal policy, especially after the 19th National Congress of the Communist Party of China which is due to be held later this year in Beijing. He expected 14-shares to see a correction of 5 percent to 10 percent in the latter half of this year. As the valu-ation of the mid- and small-cap stocks in A-share market had dropped significantly, he estimated small-cap stocks would rally 10 percent while big-cap stocks would rise about 5 percent. The biggest mainland commercial bank bet on large financial enterprises, which would benefit from deleveraging, and an infra-structure sector which would benefit from a proactive fiscal policy