China's economic growth is expected to remain robust during the second half of the year on the back of strong policy support and recovering external demand, even as the government shifts its focus to containing systemic risks in the financial sector, a leading ratings agency said on Tuesday.

Unlike the strong recovery seen in the first few months, as reflected in the key economic data, the growth momentum is expected to moderate from July. For the full year, the GDP growth rate may come in at 8.5 percent, up significantly from the 2.3 percent seen last year, global ratings agency Moody's Investors Service said in its revised forecast.

Monetary policy focus in China is aimed at achieving balanced liquidity conditions, which will contribute to slower overall bank loan growth. Shadow banking assets will fall further this year as regulatory scrutiny tightens, it said.

The investment-driven economic recovery, seen since last year, led to a sharp increase in the economic leverage last year, and the overall leverage level rose by nearly 10 percentage points, according to the ratings agency.

Though the government is paying more attention to risk control, fixed-asset investment is likely to grow at a slower rate in the second half, said Mao Zhenhua, founder and chief economist of China Chengxin International Credit Rating Co Ltd, a company in which Moody's is a shareholder.

An official from the Ministry of Finance told China Daily that the ministry will issue a guideline on adjustments in the use of local government special bonds to further clarify the adjustment procedures, scope and time limit. The move is expected to improve government debt regulations.

The ministry will also study and introduce measures to manage the fund performances of local government special bond projects, and further optimize information disclosure norms, to ensure that the funds raised via special bonds can more efficiently support economic growth, the official said.

It is clear that this year, local government special bonds will not be used for land reserve projects, other than for rental housing construction, general real estate projects and industrial projects, the official said.

From January to April, local governments issued new bonds amounting to 339.9 billion yuan, of which 23.2 billion yuan was for special bonds, to target mainly municipal infrastructure, public hospitals and other public welfare projects under construction, the Ministry of Finance said.

Analysts expect the growth in government leverage to moderate in the coming months as State-led stimulus is gradually scaled back. Fiscal policy, in the meantime, will focus on infrastructure and strategic investment to spur technological innovation and support the country's dual-circulation strategy.

"Attention should be paid to fast rising household leverage, due to the growing property and consumer credit markets," Lillian Li, vice-president of Moody's Investors Service, said on Tuesday.

"Although household leverage is now approaching the developed economy levels, improving household income growth and recovery in the labor market is expected to soften the pressure on household balance sheets," said Li.

Moody's analysts expect debt servicing costs in the household sector to remain at manageable levels, due to supportive measures including lowering management fees and sales costs for corporates, easing credit conditions and debt extensions.

The key downside risk to the near-term growth outlook is the degree and pace at which the authorities refocus policy away from growth support to deleveraging, which could expose vulnerabilities, it said.

In addition, faster-than-expected domestic policy normalization or the possibility that further waves of the COVID-19 pandemic could derail the global economic recovery represent major risks to China's growth outlook in the near term, it said.