BEIJING China's growth is set for its weakest patch since the global financial crisis as authorities pull back on the stimulus that helped the economy get off to an unexpectedly strong start this year, and keep funds tight to deter risky lending.
After clocking 6.9 percent in the first quarter thanks to spending on infrastructure and a property boom that policymakers want to rein in, analysts surveyed by Reuters reckon economic growth will just about make Beijing's target of 2017 of 6.5 percent as it slows over the rest of the year.
Massive debt - standing at nearly 300 percent of GDP - and serious budgetary imbalances mean Beijing can't carry on pump priming. The brakes went on in April, when annual growth in fiscal spending dropped to 3.8 percent from 21 percent the first quarter.
And worries about speculative bubbles have forced the central bank to tighten short term liquidity, while trying to keep medium term funding available for investment.
"Noticing how serious policymakers seem to be at the moment about reining in financial risks, it's not impossible we're going to see a significantly lower economic growth target next year," said Louis Kuijs, an economist at Oxford Economics in Hong Kong.
Scope for further tightening in monetary policy could be limited if economic growth became uncomfortably slow.
"I don't think we're going to see much more additional tightening… but the risks now are on the downside," said Julian Evans-Pritchard, an economist at Capital Economics in Singapore.
Trying to generate growth through exports by letting the yuan depreciate isn't an option, due to concern about capital flight that saw foreign exchange reserves fall below $3 trillion earlier this year, and the worry that it could provoke the Trump administration into some kind of retaliation.
Policymakers want to move the economy onto a path where consumer spending becomes the main driver, but it's not there yet.
"Consumption has been very steady and that has been a huge benefit - it has been a very nice buffer," said Kuijs.
"But in my view, unlike in the United States where consumption by itself can drive the cycle, I would argue that in China, that is not yet really possible...because consumption is still following on to what is happening in investment and wages."
Household spending only accounted for 37.1 percent of China's economy in 2015, according to World Bank data. While that is up from a low of 35.8 percent in 2007, it is far below the 54.2 percent average for middle income countries.
And spending is looking soft, at least by Chinese standards.
Automobile sales rose 4.6 percent in the first four months of 2017, about three-quarters the pace of a year ago. Movie ticket sales, flagged as a sign of China's growing consumer class, stalled last year and have been mixed this year.
Annual retail sales growth eased to 10.7 percent in April, and has been on gradual downtrend since 2010, when it notched over 18 percent. Consumption, on a per capita basis, is growing slower than GDP.
And the industrial side of the economy is also slowing.
Producer prices fell in April for the first time in seven months, trade data showed a surprising slowdown in imports, and surveys of manufacturing and service-sector activity were weaker than expected.
April data released on Monday for factory output and fixed asset investment also showed growth slowed from March.
There has been some progress on deleveraging. While new credit was a record 6.94 trillion yuan ($1.01 trillion) in the first quarter this year, as a proportion of GDP it fell to 38.4 percent from 41.3 percent a year earlier.
"We must push deleveraging," said Tang Jianwei, senior economist at Bank of Communications in Shanghai. "We cannot go back to the old road if we feel pain. The economic transformation is still going on and deleveraging has just started."
Graphic: China monthly economic activity indicators - reut.rs/2rli8qV
(Reporting by Elias Glenn; additional reporting by Kevin Yao; Editing by Simon Cameron-Moore)