(Yicai) Sept. 1 -- China’s economy will go on recovering in the second half of the year, but robust policy support is still needed, according to a former head of the central bank’s financial and statistics department.

The economy is in a critical period of recovery and the country should continue to strengthen countercyclical regulation to consolidate the foundations of the recovery, Sheng Songcheng, who is now a professor at the China Europe International Business School, said in an interview with Yicai.

The official manufacturing purchasing managers’ index for last month indicated that demand is picking up and businesses are stepping up purchasing and production even though factory activity was still in contraction territory, he said.

The manufacturing PMI rose for the third month in a row in August, climbing to 49.7, up from 49.3 in July, 49 in June, and 48.8 in May, data from the National Bureau of Statistics showed yesterday. The PMIs for 12 of the 21 surveyed industries were each higher than a month earlier, indicating an upswing.

The sub-indexes for production, new orders, and supplier delivery times are already rising again, while the sub-indexes for small and mid-sized firms bucked the downward trend of earlier months to climb along with those of big businesses, while early signs of stock replenishing have reappeared, Sheng noted.

Against this backdrop, China should maintain its proactive fiscal policy and moderately easier monetary policy and focus on coordination between these policies, he said.

It is still possible that the People’s Bank of China will cut the reserve requirement ratio for commercial banks in the coming months, partly because almost 69 percent of national debt and nearly 86 percent of local government bonds are held by commercial banks, Sheng said, adding that an RRR cut would free up funds to absorb national and local debt.

Yuan, Property Market

The Chinese yuan will continue to come under pressure in the short term, but against the US dollar it will stay largely stable as the spillover effect of US interest rate hikes lessens and China’s economic fundamentals improve, Sheng predicted.

Sheng also said that the relaxation of real estate market policies by various local governments have yet to spur property sales because supply and demand has undergone major changes. This means the policy easing is intended to stabilize the market, rather than deliver economic stimulus as in the past, he said, so any policy that can steady the market should be considered an effective policy.

And even though the overall downturn in China’s property market is not expected to be reversed in the foreseeable future, Sheng said, there always will be structural opportunities in the market. For example, the demand for homes in comparatively developed areas is much higher than in other areas, he said.

“Long-term factors such as economic growth, urbanization, and the vast national population determine that China’s real estate market still has strong supports it can rely on,” he said.

“Stabilizing the market and eliminating panics caused by the oversold market should be the priority focus of current government policies,” Sheng added.

Editor: Emmi Laine