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Why Are Q1 Economic Indicators Better than Expected

Submit Time:01-06-2017 | Zoom In | Zoom Out

Author: | Source:People's Daily

Abstract:

 

At the press conference held by the State Council Information Office on April 17, Mao Shengyong, spokesman of the National Bureau of Statistics, said that GDP grew by 6.9% in the first quarter, up 0.2 percentage point than the same period last year and up 0.1 percentage point than the four quarters of last year. "China has followed the general principle of seeking progress in stability, implemented the new idea of development, and put emphasis on the core task of boosting the supply-side structural reform. The Chinese economy continued the trend of stable and sound development, and main economic indicators performed better than expected, marking a good start of this year. It has laid a solid foundation for achieving the expected goal of annual development and striving for better results in the actual work."   

Factors that support economic growth in the first quarter   

Stronger support provided by the secondary industry especially manufacturing, bigger fundamental role of consumption, and shift from negative contribution to positive contribution by exports   

"In terms of the four macroeconomic indicators, the Chinese economy is currently exhibiting a good landscape featuring rebound in economic growth, basic stability of prices, expansion of employment scale, and improvement in the balance of payments." Mao Shengyong said when he summing up China's economic trend for the first quarter.   

Rebound in economic growth. GDP grew by 6.9% on a YOY basis in the first quarter. In particular, the added value of industrial enterprises above designated size increased by 6.8% on a YOY basis, up 1 percentage point over the same period last year. In addition, the added value of services grew slightly faster than that in the same period last year.   

Basic stability of prices. CPI rose by 1.4% year on year in the first quarter, showing a moderate rise trend. PPI rose by 7.4% year on year in the first quarter. 

Expansion of employment scale. In the first quarter, 3.34 million people were newly employed in urban areas nationwide, an increase of 160,000 over the same period last year. At the end of March, the surveyed unemployment rate of cities and the surveyed unemployment rate of large cities were lower than those at the end of February, remaining at a lower level. The latter was even lower than 5%. At the end of February, the number of rural migrant workers increased by 2.7% over the same period last year. In addition, the ratio of job vacancies to job seekers was 1.13, slightly higher over the same period last year, indicating that the overall employment environment of the market was promising. 

Improvement in the balance of payments. "In terms of the current account, the surplus in goods trade exceeded RMB 450 billion in the first quarter. In terms of the capital account, the inflow and outflow of capital now becomes more reasonable and orderly, and the exchange rate of renminbi and the foreign exchange reserves have stabilized on the whole." Mao Shengyong analyzed that the four macroeconomic indicators show that the Chinese economy is now operating with stable and sound progress. 

So, what are the factors that support rebound in the economic growth in the first quarter?   

First, the secondary industry especially manufacturing provided stronger support. In the first quarter, the added value of the secondary industry increased by 6.4% year on year, up 0.5 percentage point over the same period last year; the secondary industry contributed 36.1% to GDP growth, up 1.1 percentage points over the same period last year. 

"Since last year, with the solid progress in the supply-side structural reform, the market supply-demand relationship has improved significantly, and enterprises have become more confident in the market as evident by PMI, non-manufacturing business activity index and some other leading indicators." Mao Shengyong analyzed that, at present, corporate profits grew faster. Especially in January and February, profits of industrial enterprises above designated size increased by 31.5% year on year. Good performance led to expanded production, so industrial production is accelerating and making a huge contribution to the entire economic growth.   

Second, consumption played a bigger fundamental role. In the first quarter, consumption contributed 77.2% to economic growth, up 2.2 percentage points over the same period last year. 

Three reasons can explain the increasing contribution of consumption. The first is that people earn more money. In the first quarter, residents' income actually increased by 7.0%, up 0.5 percentage point over the same period last year. Income growth guarantees consumption growth. The second is that consumers are trading up. The structural upgrading of China's resident consumption is accelerating, as evident by the fact that quality consumption in physical consumption is growing faster and service consumption is accounting for an increasingly higher proportion in total consumption. The third is that consumption areas were widening. The strategy of "Entrepreneurship and Innovation" engendered a lot of new consumption patterns and types, leading to the development of emerging consumption and the growth of new drivers.   

Third, export contribution turned from negative to positive, serving as an important support for the better performance of economy. In the first quarter, the surplus in China's goods trade fell by 35.5% year on year. If the price factor was removed and the trade in services was taken into account, the full-caliber surplus in trade in goods and services grew compared with last year. As a result, net exports of trade in goods and services in the first quarter contributed 4.2% to economic growth, as opposed to -11.5% in the same period last year.   

Current drivers of economic growth   

The tertiary industry and consumption as the "main engine"   

The economic growth registered at 6.9% in the first quarter was indeed better than expected, but many agencies believed that investment in infrastructure and real estate is the ballast that underpinned this round of economic growth, which also means that the Chinese economy now lacks endogenous power and sustainability. So, what are the current drivers of economic growth now?   

Mao Shengyong held that the tertiary industry and consumption are the "the main engine" driving China's current economic growth. From the perspective of industrial structure, the tertiary industry contributed more than 60% to the economy as the greatest driver of economic growth. From the perspective of demand, consumption contributed 77.2% to economic growth, up 2.2 percentage points over the same period last year, and capital contributed less than 20%, representing a significant decline.   

"That the current improvement in economic growth is driven by capital cannot be justified. In fact, the development of consumption is accelerating, so is the development of services. This is an inevitable reflection of our current stage of development." Mao Shengyong said.   

From the perspective of investment, in the first quarter, private investment grew by 7.7%, up 1 percentage point over the period from January to February; manufacturing investment grew by 5.8%, up 1.5 percentage points over the period from January to February. Both continued the trend of constant recovery beginning last September, reflecting more the enhanced endogenous power and vitality of market. 

"According to the current situation, the trend of growing private investment can be attributed to the following factors. First, the market supply-demand relationship is generally getting better and the market vitality is improving, creating favorable conditions for the investment and development of private enterprises. Second, a series of policy-supported measures such as deepening the reform of streamlining administration, delegating more powers to lower-level governments and to society in general while improving regulation, and optimizing services, as well as accelerating the promotion of PPP projects, have provided a broader space for private enterprises and are conducive to boosting the development of private investment." Mao Shengyong said that given the current momentum of economic development, the real economy has been improving. With the increase in policy support, including the shift of a lot of resources from the virtual economy to the real economy, the real economy has gained favorable conditions to achieve better development. 

Enhancement of market endogenous power hinges on the guidance of the new idea of development as well as the in-depth advancement of the supply-side structural reform. In terms of cutting production overcapacity, in the first quarter, the capacity utilization rate of industrial enterprises above designated size was 75.8%, up 2.0 percentage points over the fourth quarter of last year. In terms of deleveraging, the asset-liability ratio and cost of industrial enterprises declined, and the asset-liability ratio of industrial enterprises above designated size was 56.2% at the end of February, down 0.6 percentage point over the same period last year. In terms of reducing cost, the cost per RMB 100 of main business income of industrial enterprises above designated size was RMB 84.91 in the previous two months, down RMB 0.28 over the same period last year. In terms of depleting stocks, the area of commercial housing for sale fell by 6.4% year on year at the end of March, up 3.2 percentage points over the end of last year. In terms of bolstering weak spots, investment in ecological protection and environmental management, public facilities management and agriculture was accelerating.   

Outlook on economic growth in the future   

Increasingly stable operation of the Chinese economy   

The GDP growth rate registered at 6.9% in the first quarter was amazing. How to look at the prospect of economic growth in the future?   

Mao Shengyong held that the stability of China's economic operation is increasing.  

"Stable economic operation, in general, is characterized by stable growth, stable employment, stable prices, and stable income. From the perspective of economic growth alone, it was 6.9% in 2015, 6.7% in 2016, and 6.9% in the first quarter of this year. Economic growth experienced very small fluctuations, which in fact shows that the whole economic growth is stabilizing. Stable economic growth does not mean any fluctuation is not allowed and economic growth should remain the same every quarter. It also does not mean that economic growth should rise quarter by quarter, which is unrealistic and does not meet the law."   

So why is the stability of China's economic growth strengthened?   

First, China's economic structure has undergone great changes. From the perspective of industries, the proportion of the primary, secondary and tertiary industries has exceeded 50%. The service industry has become the ballast and stabilizer of stable economic operation because of its stable performance and sound development. From the perspective of demand, consumption contributed more than 60% to economic growth and served as a strong support for stable economic operation.   

Second, the future development of the Chinese economy has great potential. As a large developing country, the fundamentals of the Chinese economy featuring long-term improvement have not changed; new urbanization, new industrialization, agricultural modernization and informatization have proceeded synchronously; there is a great room for balanced development; the Chinese economy has a more flexible room and great potential for future development.

Third, the supply-side structural reform releases dividends. "We have accumulated incredibly abundant material capital through nearly 40 years of rapid development. Human capital is also growing rich. The CPC Central Committee and the State Council are committed to deepening the supply-side structural reform as well as the reforms in key areas and important aspects, leading to more reform dividends being released. The Chinese economy has enormous development potential in the medium and long run." Mao Shengyong said. 


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