Why China remains positive amidst sluggish economy

7.5% GDP target is achievable, says government.

According to BBVA Research, China's Premier Li Keqiang emphasized in a speech yesterday that the government can realize its macroeconomic targets for this year, including 7.5% GDP growth in 2013.

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The remarks come against a backdrop of weakening economic activity, underscored by today’s NBS services PMI for June (53.9 vs. 54.3 in May).

The speech may help to alleviate market concerns that the government has abandoned its growth target for the year amidst a campaign to curtail shadow bank lending and contain other domestic financial fragilities.

For further cues on the course of government policies and macro targets, we await the State Council’s Mid-Year Economic Conference to be held in mid-July, and the Annual Party Conference in October, where the agenda for key reforms is expected to be announced.

In the meantime, we expect the slowdown in growth to ease later this year on an improving global economy and a recovery in manufacturing investment, which should keep full-year growth at or above the government’s 7.5% official target.