Research reports released this week by several foreign financial institutions suggest that infrastructure construction has become the backbone of China's current economic development, offsetting to some extent the negative impact of weak real estate investment.

A research report by Standard Chartered points out that investment data shows public infrastructure absorbed most of the new financing, and this sector has seen the most obvious rebound in economic activity; bond market financing reached 1.3 trillion yuan in the first half of the year, with most of the funds also flowing to infrastructure projects.

Bank of America Merrill Lynch's "China Economic Leading Indicators" continued to improve in June. The institution said in its research report, "We believe part of the reason for the improving economic recovery is government-initiated infrastructure construction," and "Beijing needs to remain firm on 'mini-stimulus.'"

A UBS Securities research report says that "mini-stimulus" measures in the second quarter boosted output of crude oil, crude steel and steel products, driving industrial production in June to grow 9.2% year on year, a new high for the year. Thanks to accelerated fiscal appropriations and credit lending by policy banks, infrastructure investment grew strongly by 24% year on year in the second quarter, offsetting to some extent the negative impact of weak manufacturing investment and real estate investment and supporting overall fixed asset investment growth.

A Nomura Securities research report says, "Due to structural oversupply, we believe real estate investment growth will continue to slow in the second half of the year, but this will be offset and surpassed by other sectors, especially infrastructure spending."

The Royal Bank of Scotland research report also believes that "despite the obvious weakness in the real estate sector, we believe most of the engines of organic growth in China's domestic economy remain intact," and expects full-year economic growth to be slightly above the preset target of 7.5%.