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China to grow 7.6 percent in second half; risks up: paper

Customers shop at a supermarket in Shanghai March 8, 2013. REUTERS/Aly Song
Customers shop at a supermarket in Shanghai March 8, 2013. REUTERS/Aly Song

SHANGHAI (Reuters) - China's economy is expected to grow 7.6 percent in the second half of 2013, but risks of bad local government loans, slowing growth of central government revenue, diminished export competitiveness and industrial capacity are growing, the official China Securities Journal reported on Thursday.

Economists have been cutting their forecasts for the world's second-largest economy following a string of weak data recently, with some predicting the government will not be able to meet it full-year target of 7.5 percent. China's economy expanded 7.8 percent last year, the slowest pace in 13 years.

At the same time, Chinese markets are struggling to recover from a crunch in the country's financial markets that saw short-term money rates spike to record highs and stock markets swoon in recent weeks.

Investors feared that the increase in rates, set off by the central bank when it refrained from injecting liquidity in recent weeks, meant Beijing was preparing to tighten monetary policy to seize control of its shadow banking sector, which some fear is misallocating capital to speculative ventures such as real estate.

The report, which was authored by an economic research unit at the State Information Centre, said that China's economic growth model remained fundamentally stable. Whole year inflation was expected to clock in at a moderate 2.5 percent, and China should maintain its growth targets and stable financial and monetary policy stances.

The report said local government debt was posing increasing risks to economic recovery, and so was industrial overcapacity, increasing investment in real estate that is pushing up housing prices, and the increase in the value of the yuan against other currencies which has hurt export competitiveness.

The report recommended that China make minor adjustments to monetary and financial policy to sustain growth while "eliminating waste."

(Reporting by Pete Sweeney and Chen Yixin; Editing by Jacqueline Wong)