The latest figures released by the National Bureau of Statistics on Monday shows that the Chinese economy grew at 6.3 percent year on year in the first half of 2019. Nomura's chief China economist Lu Ting noted that the country's growth still faces uncertainties.

The country's economy is still growing at a steady pace while internal and external challenges remain. The biggest challenge is still China- U.S. trade tensions, Lu said, adding that the worst case will be an escalation of the trade tensions. 

Lu said that based on what happened in the past year, China's exports to the U.S. could be reduced by about 30 percent if additional tariffs are imposed. "Assuming some value added will proportion around 60 percent, China will lose around 0.4 percent of GDP," he said.

Data showed that the country's total value added for industrial enterprises posted steady growth in the same period, up by six percent year on year. Fixed-asset investment growth was 5.8 percent in the first half of the year, faster than the growth in the first five months. While Lu noted China's manufacturing investment will be the biggest victim if trade tension escalates and the exchange rate between Chinese yuan and the U.S. dollar may crack seven.

Lu said the space of policy relaxation is smaller since the return on China's investment and the Chinese saving rate is lower than before. He warns that the government must be cautious in ramping up credit in stimulating economic growth, as fast credit growth will make the Renminbi even weaker, and will also make China more dependent on foreign debt.

"Maybe it is time for Chinese government to use new ways to stimulate economy instead of the old conventional approaches," Lu said.

Lu noted that a lot of credit has been taken by the local Chinese government. "Maybe too much credit has flowed to the property market and to infrastructure spending in some relatively small cities," he said.