[By Gou Ben/China.org.cn]

While the days of unsustainable double-digit growth are fading in China, particularly in the coastal megacities, an era of more sustainable single-digit growth is about to dawn.

There are real challenges but these are medium-term in nature. In the next few months, China will begin a slate of reforms, which have been designed to support a new kind of growth on the mainland.

Short-term trends

Recently, the International Monetary Fund (IMF) reported that China needs reforms to ensure more consumer-based, inclusive, sustainable growth. In turn, the Chinese economy is expected to grow 7.8 percent in 2013.

Dan Steinbock

However, the prospect of downside risks has increased, due to rising domestic vulnerabilities in the financial sector and local government finance.

In the short term, the uptrend in many Chinese macroeconomic indicators continues to prevail. Analysts who have a realistic picture of China's potential and global growth prospects remain fairly positive on its economy and equity market for the latter half of 2013 and first half of 2014.

While the IMF characterization of China's opportunities and challenges may be valid in broad terms, the annualized growth rate is likely to be closer to the Chinese expectation of 7.5 percent.

China's new leadership is more focused on sustainable growth and people's livelihood than unsustainable development and China's aggregate growth.

The great balancing act

In the first half of the year, credit expansion proved greater than expected. It has supported growth in China amid a very challenging international environment, shunning a slowdown which pessimists have been predicting since 2010.

Nonetheless, this kind of credit expansion can only be a temporary injection. That, in turn, became clear a few weeks ago when China's interbank market experienced a liquidity crunch; but the People's Bank of China (PBOC) did not intervene as it might have in the past.

While the liquidity crunch harmed growth prospects in the short-term, the goal was medium-term. By allowing the situation to worsen, the PBOC, along with the banking regulators, sought to crack down on off-balance-sheet lending, which banks have used to channel credit to local-government finance vehicles (LGFVs).

It was a challenging balancing act between tighter monetary policies and steering local governments away from dated growth models. As the Chinese economy is now shifting from investment and net exports toward consumption, local governments can no longer predicate their growth on land sales.

What these overall trends highlight is the importance of the proposed reforms in the second half of 2013, in order to boost growth in 2014. The central government rightly considers these reforms vital for China's future prospects.