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The Chinese Economy Maintains a Robust Momentum for Growth

Submit Time:04-08-2017 | Zoom In | Zoom Out

Author:Ma Xiaohe, Du Feilun | Source:People’s Daily


  Since the beginning of this year, people from all regions and sectors, under the guidance of the new outlook on development, have sought progress while working to keep performance stable and worked hard to adapt themselves to, grasp and even lead the new normal of economic development. By taking the supply-side reform as the main thread, they have expanded the gross demand moderately, gathered pace in fostering new engines for economic growth. As new positive changes occurred to the major economic indicators, the Chinese economy has continued the overall upward momentum since the second half of last year, thus revealing a continuously-improved macroeconomic operation.  

  Economic prosperity continues to improve, which can be felt in both quality and efficiency.  

  Seen from the short-term macroeconomic operation, some fast variables and leading indicators like order, price, enterprise inventory, and investment indicate that both market expectation and economic prosperity have gone up. As far as the mid-and-long-term macro-economic operation is concerned, the optimization of industry structure, upgrade of consumption makeup, and other factors conducive to the steady, health growth of economy are releasing positive signals. 

  Short-term economic indicators show the Chinese economy has become more prosperous. As the leading indicators reveal, the manufacturing has expanded the production scale and the service sector continued its momentum for rapid growth. As of this June, the manufacturing purchasing managers’ index (PMI) had remained above the 50% threshold for 11 consecutive months. As the supply of raw materials for the industry gathered pace, companies demonstrated stronger willingness for inventory replenishment and carried out production activities more vigorously. The non-manufacturing business activities have stayed within the expansion range for nine consecutive months, above 54%, among which such sectors as air transportation, postal service, telecommunications, broadcasting, TV and satellite transmission service, internet, software and information technology service, financial services all saw their business activity index within the range of fairly high prosperity and total business volume on the rapid rise. As the quantity of goods procured, the indicators of power consumption and cargo volume both went up substantially. During the period from this January to May, the industrial power consumption increased by 6 percentage points year on year and the railway transportation volume grew by 15.2%, both of which exhibited the obvious sign of economic recovery.  

  Cyclical indicators have carried the positive signals about economic trends. Firstly, the production cycle was almost adjusted to a desired position. As the international practice indicates, the unilateral downward trend of the production cycle usually lasts for seven years to the maximum. Since China entered the downward cycle from 2010, it has approached the targeted peak. As a matter of fact, the proactively re-stocking by enterprises since this year has attested to the statement. Secondly, the industrial producer price index has demonstrated a positive trend. Prices change faster than production activities since they come closer to the market. Affected by the universal rise in commodity prices across the international market, prices of steel, coal, petrochemical, and non-ferrous products went up alternately in China. Besides, since the industrial producer price index ended the decline and began to grow from last September, the index has taken on a positive trend, capable of boosting the industrial demand expansion. Thirdly, enterprises have enhanced their economic benefits remarkably. With operations conditions improved continuously, enterprises drove up their operating income and profit rapidly. From this January to May, the profits of industrial enterprises above the designated size grew by 22.7%, setting a new high over the same period since 2012.  

  The Chinese economy has demonstrated a turnaround, thanks to the existence of various supporting forces.  

  Seen from the medium and long terms, the Chinese economy is undergoing the period of medium and high growth and marching toward the high-income period from the middle-income period, thereby demonstrating the solid foundation, enormous potential and vast space to maneuver. Currently, the Chinese economy operates with the support of various forces.  

  Micro entities are expected to unleash new vigor. As the reform of streamlining administration, delegating more powers to lower-level governments and to society in general while improving regulation and optimizing services keeps moving forward, the market access environment gets improved continuously and new types of relations between politics and commerce are taking shape, greatly promoting the mass entrepreneurship and innovation. The number of market players has maintained a rapid growth rate. Last year, the new market players amounted to 16.51 million nationwide, up 11% and the newly-registered companies reached 5.5 million, with the daily average increase of 15,000 firms. Currently, China has the world’s largest number of market players. Its persons starting their own business have exceeded the total population of Germany and its market players have surpassed the total number of those on the US, EU and Japan markets combined. Micro entities unleash vigor and support innovative development for breakthrough progress. Last year, China owned more than 1 million of valid invention patents, with a host of signature scientific and technological achievement including super computers adopted the self-developed chips springing up constantly.  

  New industries, products and economies keep growing. New industries have flourished. This May, hi-tech and manufacturing sectors saw their value added growing by 11.3% and 10.3% year on year, respectively, both of which were faster than the industrial value added for the enterprises above the designated size increased. New products continue to soar. SUVs, new energy automobiles, industrial robots, integrated circuits, smart TV sets, and other new precuts had their production increase substantially. New economies are in the ascendant. The new generation of internet technologies represented by big data is permeating into all economic and social sectors at an accelerated pace. As a result, they have great bearing on production modes and circulation patterns, and inject new energy for the economic and social development. During the first five months this year, the online retail sales went up by 32.5%, 22.2 percentage points faster than the social consumer goods grew. Such emerging services as bicycle sharing, online ride-hailing, meals on wheels, online healthcare, and remote education all continued to maintain a momentum for robust growth.  

  Domestic demand has played an improved role in promoting economic growth. Domestic demand-driven economy is taking shape in China with each passing day. The final consumption and capital formation in the first quarter contributed 95.8% to the economic growth. On the one hand, consumption kept growing in scale and upgraded in structure. Demands for such services as tourism, medical care, healthcare and housekeeping grow day by day, and consumption for products relating housing and transportation like home decorations and automobiles keeps unleashing potential. As consumption continues to grow at a double-digit rate, China’s retail scale of consumer goods has ranked the second place across the world, and the final consumption makes a constantly improved contribution to the economic growth. On the other hand, the effects of investments in bolstering weak spots start to appear. From January to May this year, the infrastructure investment drove the investment in fixed assets by 3.9 percentage points, and contributed 45.6% to the total investment. Among them, such weak fields or links as ecological protection and environmental treatment, public facility management, road transport, and water conservancy management saw their investment increasing substantially, thereby ensuring the continued economic growth.  

  The all-round opening up to the rest of the world has created favorable conditions for economic growth. The “Belt and Road” initiative gathers pace and the cooperation projects have yield effects better than expected. China quickens its pace to carry out economic and trade cooperation with the participating countries in the initiative. As a result, the bilateral investment maintains a fairly high level. Although the foreign direct investment (FDI) dropped by 13% across the world last year, China attracted USD139 billion of FDI, up 2.3% over previous year and ranking the third place worldwide. In the first four months this year, Chinese companies signed new contracts worth of USD31.85 billion with the participating countries of the “Belt and Road” initiative, yielded the operating income of USD18.95 billion, and made non-financial direct investment in USD3.98 billion. As international cooperation in production capacity advances steadily, a host of major projects went into operation smoothly, thus having many devices, technologies, standards and services go global.  

  High importance is attached to the challenges and problems confronting economic operation.  

  Currently, China hasn’t relieved the in-depth structural contradictions that were left over from the long past economic development fundamentally. At the same time, risks and hazards are still gathering in some fields. To maintain the steady, healthy economic development, China should gain a correct understanding of and attach high importance to the contradictions and problems that have been identified from its economic operation.  

  The impact from the external uncertainty can be felt still. Even though many international organizations including the International Monetary Fund (IMF) and the World Bank have raised the expectation for the global economic growth this year, China cannot afford to ignore the fact that the in-depth adjustment to the world economy after the international financial crisis is far from completion, the world economy has been still characterized with the moderate recovery overall, and the Chinese economy is likely to be held back from steady operation due to the disturbing impact arising from the policy changes in major economies.  

  The real economy still faces quite a few difficulties. Firstly, cost raises continue to pose considerable pressure. In addition to the external transaction costs like taxes and fees that haven’t been lowered down, the costs of fund, land, energy, environmental protection and labor as well as some internal management costs altogether pose compelling operating pressures on companies. Secondly, poor access to fundraising at high cost still remains a prominent challenge. Some firms yield more accounts receivable and have them paid back within a prolonged period of time. As a result, they are reduced to a cash-strapped state. As most banks raise their awareness of risk, they become more prudent to extend loans, which makes fundraising more difficult for small and micro-sized enterprises. Thirdly, the real economy has its efficiency yet to be improved. Since the real economy lags far behind the virtual economy in terms of profit margin, some manufacturing companies have begun to seek development in real estate and finance, as a means to make up the poor profit of principal business with the income from supplementary business. However, this phenomenon is a bane to the industry upgrade and the steady, healthy growth of economy.  

  China cannot afford to ignore economic and financial risks and hazards. Although the overall systemic risks are controllable for now, we should be hyper-vigilant against the risks arising from non-performing assets, bond default, shadow banking, internet finance, etc. As far as the financial field is concerned, many phenomena that merit attention have emerged, including the constantly rising NPL ratios at commercial banks, the remarkably increased corporate bond defaults, the still compelling pressure to maintain the stability of RMB exchange rate, as well as banking risk, credit risk and capital outflow. At the same time, the local governments saw their fiscal revenue reduced remarkably, magnifying the imbalance between fiscal income and expenditure. When it comes to the real estate field, house prices have soared and facilitated the formation of asset bubbles in the tier-1 and tier-2 cities while the tier-3 and tier-4 cities stilled face considerable de-stocking pressure.  

  Turn the potential economic growth into the actual economic growth.  

  Comprehensively judged, the Chinese economy takes on an increasingly obvious momentum for bottoming out. In particular, against the backdrop where the market expectation is getting better day by day, people from all trades and professions demonstrate remarkably increased initiatives in starting up their own business. This improvement will help defuse various risks at an accelerated pace and solve major structural imbalances. It is estimated that the Chinese economy will continue to grow at a high-medium pace throughout the year. Currently, China should gather pace in implementing various tasks according to the core message of the Central Economic Work Conference and the Report on the Work of Government, deepen the structural reform on supply front, accelerate the replacement of old engines for economic growth with new ones and the optimization of economic structure, turn the potential economic growth into the actual economic growth, and propel economy toward steady, healthy development.  

  Push forward the structural reform on supply front and sharpen the competitiveness of the real economy. Efforts are made to further phase out the excess production capacity of the traditional industries, substantially lower down the operating costs of brick-and-mortar enterprises, open up the channels through which capital may flow into real economy, gather pace in 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 the reform of state-owned enterprises (SOEs), and support the innovative development of real economy through creating a favorable business environment.  

  Policies should keep stable to boost the balanced growth of supply and demand. China needs to continue expanding effective demand, intensify government investments to bolster weak points, and boost people’s confidence and willingness in investment and growth through innovative institutions and mechanisms; foster new engines for consumption growth, promote the upgrade of consumption structure, and unleash the potential of consumption growth; work hard to forge new engines for export and new competing edges and expand the space for export growth.  

  Take precautions against risks and hazards and propel market toward healthy development. To this end, measures are taken to further strengthen risk monitoring and early-warning, intensify joint prevention and control across different markets, prevent the inter-market risk from getting cross-infected and triggering systematic risks, stabilize the expectations for how the real estate market will grow, safeguard the stock market against the possibility of drastic fluctuation, and protect the bond market from the risk of credit default.  

  Stabilize employment and increase resident income to ensure people’s livelihood. China should work hard to get rid of the structural contradictions confronting employment and the uncertain factors that impact the growth of resident income, promote the reform on the personal income tax system, push forward the targeted poverty reduction drive, consolidate the employment foundation through multiple channels, diversify the means to increase resident income, stand fast the bottom line for ensuring people’s livelihood, increase people’s welfare, and create a harmoniously stable society.  

  (Author’s affiliation: Academy of Macroeconomic Research of the National Development and Reform Commission) 

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