Economic Watch: Chinese economy mixed by encouraging signs, lingering concerns

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

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

Despite looming downward pressure, sentiment has been boosted by improvements in a slew of 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 further into 2016.

"The reacceleration seen in March was more than just a seasonal blip," Bloomberg economist Tom 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 the markets are trimming bets on further rate cuts.

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

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

The country's GDP expanded 6.7 percent in Q1, narrowing from 6.9 percent in 2015 but still remarkable given sluggish global recovery. The government has set a growth range between 6.5 percent and 7 percent for this year.

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

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

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

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

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

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

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

The central government on Tuesday vowed it would rejuvenate the northeast rustbelt, the old industrial base, beset by overcapacity and falling traditional industries, considered an epitome of the economy. Endi