Banking group HSBC sees economic growth picking up in China and the momentum continuing into next year.
"In the first quarter we had a bit of a growth scare. Things really looked quite challenging," HSBC's chief economist, Asia, Frederic Neumann, told the Herald.
"But things have improved."
Last week's initial PMI index, an early indicator of manufacturing activity, rose to 52, an 18-month high, suggesting China's mini-stimulus is bearing fruit.
"Infrastructure in particular has started to pick up and that is helping the growth momentum, and in the second half we should have fairly robust growth," Neumann said.
HSBC is forecasting the Chinese economy to grow 7.5 per cent this year and 7.7 per cent next year.
Neumann does not see the delivery of monetary stimulus whenever the Chinese economy shows signs of flagging as inconsistent with the broader objective of rebalancing the economy away from growth top-heavy in investment spending and towards greater reliance on domestic consumption.
"In many ways having an economy growing at a reasonably stable rate is helpful for the reform process because if things slow down too sharply immediately other concerns take precedence, employment stability for example," Neumann said.
"It's very difficult to go cold turkey on lending on investment in China. It is such a large part of the economy. The best you can hope for is for a very gradual shift away from investment to consumption," he said.
"But the prerequisite for this is structural reforms such as in the state-owned enterprise sector, and to the household registration system, the hukou system."
Under that system an estimated 15 per cent of the population who live and work in the cities are still officially registered as country-dwellers and are second-class citizens in the cities they now inhabit.
The Chinese Government's declared policy is for markets to play a "decisive role" in the allocation of resources, which implies a willingness to see enterprises fail.
But it has to proceed gingerly with financial sector liberalisation, walking a fine line between concern about moral hazard on the one hand and risks to financial stability on the other.
"Chinese policymakers have to get some things in order before you see more restructuring, for example a deposit guarantee scheme. The People's Bank of China has indicated that will be up and running in the second half of the year."
Neumann tipped more restructuring next year, involving "the closing of excess capacity and thereby possibly some unemployment".
One risk to the reasonably stable growth outlook HSBC expects China to have is the real estate market.
"That's something policymakers control less directly than, say, infrastructure spending. We have seen prices decline in recent months, and more importantly we have seen a slowdown in construction and developers putting in new projects," he said. "And that's a problem because 20 per cent of GDP is real estate construction. If developers start to hit the brakes that is really an issue."
Neumann said there had been some misallocation of resources - too much housing built in some cities and not enough in others.
But the process of urbanisation had a lot further to run.
And while a falling rural population would make it easier to consolidate the small land holdings which constituted one impediment to raising agricultural productivity, water constraints were becoming binding, Neumann said.
That leaves a country like New Zealand whose dairy products, for example, are an export of virtual water, well placed.