Third, economic restructuring moving on in light of market demand has also played an important part in the recent revival.

Fourth, people's livelihoods have been improving with increased income and better social security. In the first half, even though the fiscal income decreased, the government expenditure on social security and employment grew 29.2 percent year on year. The Central Government's subsidies to urban and rural minimum living allowance rose 49.9 percent and 140 percent, respectively.

NBS figures showed the Chinese economy touched bottom in February 2009 and rebounded between March and June. During the economic spiral, investment and domestic demand became major drivers underpinning growth. In the first half, investment and consumption drove GDP up by 6.2 percentage points and 3.8 percentage points, respectively.

Growth sustainable

The SIC report stated the economic revival will continue in the next half of this year. The industrial output growth rate will stabilize and rebound, as mirrored in the climbing purchasing manager index (PMI), which has been rising for six months in a row.

"In the next half, the export freefall will most likely stop if developed economies, like the United States and the European Union, start to come out of the quagmire. The export recovery will be conducive to China's industrial rejuvenation," said the report.

The report expected that industrial added value will grow about 8.5 percent in 2009, or 1.5 percentage points faster than that of the first half.

The SIC report said investment and consumption will remain to be the biggest factors that fuel economic growth in the second half.

In terms of investment, the SIC report said rapid growth will come without doubt. It estimated that urban fixed-asset investment in 2009 will grow about 30 percent year on year, remaining one of the biggest economic propellants.

In terms of consumption, the report said retail sales of consumer goods will steadily rise thanks to government consumption expansion policies and residents' stable income. Backed by rising income, retail sales in the next half will keep expanding. The report expected China to sell 12.476 trillion yuan ($1.8 trillion) of consumer goods by year's end.

In 2009, urban retail sales will reach 8.4426 trillion yuan ($1.2 trillion), rising 14.5 percent year on year. Retail sales in rural areas will stand at 4.0333 trillion yuan ($590 billion), growing 16.1 percent year on year. Rural consumption will grow faster than that of urban areas, and is expected to outpace urban consumption in terms of growth.

The SIC report stated the economic stabilization in the United States, Japan and the European Union in the second half will improve the external environment of China's economic growth. Meanwhile, the policies supporting foreign trade will be paid off in a gradual manner, including raising export tax rebates seven times since the outbreak of the financial crisis, increasing export credit quotas and insurance, and broadening processing trade.

Uncertainties

In spite of the economic recovery, Chinese Government officials refuse to let their guard down, ever wary of possible emerging problems.

"We must fully realize that our economy is at a crucial moment in the process of economic stabilization. On the one hand, the upward trend has not been secured, balanced or enhanced. We are facing serious external challenges due to bleak foreign demand for our products. Many problems also beset domestic demand. Also, the Chinese economy is under heavy pressure from structural readjustment and a change of growth pattern," said Zhu Zhixin, Vice Minister of the National Development and Reform Commission, at a press conference held on August 7.

The skyrocketing bank loans in the first half of this year aroused enormous worries. Figures from the central bank showed new loans in the first half surged to 7.72 trillion yuan ($1.13 trillion), which was three times that of the same period last year and outnumbered the annual new loan target of 5 trillion yuan ($732 billion). The rapid new loan growth will pose a major threat to consumer prices. Substantial liquidity increase and the loose monetary policy, likewise, may increase inflation expectations.

On August 6, the central bank published a monetary policy implementation report, saying it will adhere to the properly accommodative monetary policy, but will "moderately readjust the monetary policy in line with market demand."

The SIC report pointed out overcapacity has become a major problem for some industries. On the one hand, the average 11-percent GDP growth in the five years from 2003 to 2007 allowed a large amount of production capacity to accumulate. On the other hand, the serious shortage of foreign demand plagues export-oriented industries, making overcapacity a protruding problem.

The SIC report said economic restructuring has not made headway and is still a problem to foster any new growth.