On the way to achiev­ing tar­geted growth rate

China Daily European Weekly - - COMMENT - The au­thor is a se­nior writer with China Daily. Con­tact the writer at xinzhim­ing@ chi­nadaily.com.cn

With pre­ven­tion of risk given pri­or­ity, a bal­ance will be struck be­tween eco­nomic sta­bil­ity and a safe fi­nan­cial en­vi­ron­ment


China’s econ­omy re­mains on a solid foot­ing, ac­cord­ing to the Na­tional Bureau of Statis­tics, which re­leased macroe­co­nomic data for April onMay 22. How­ever, some in­di­ca­tors show the econ­omy may face down­ward pres­sure in the sec­ond half of this year.

In­dus­trial out­put in April grewby 6.5 per­cent year-on-year. Although it was lower than the 7.6 per­cent growth in­March, it was higher com­pared with the fig­ures for most of the months last year (the high­est monthly growth last year was 6.8 per­cent, in­March), in­di­cat­ing the econ­omy is still edg­ing up.

The job mar­ket re­mained sta­ble, with the sur­veyed un­em­ploy­ment rate in 31 ma­jor cities be­ing be­low 5 per­cent in re­cent months. And in the first four months of this year, China cre­ated 4.65 mil­lion jobs, 220,000 more than the same pe­riod last year.

In­fla­tion re­mained sta­ble in April, as the con­sumer price in­dex in­creased slightly, from 0.9 per­cent to 1.2 per­cent in­March. Such a mild in­crease in the CPI in­di­cates ris­ing eco­nomic ac­tiv­i­ties and a rel­a­tively sta­ble in­fla­tion level.

China’s bal­ance of in­ter­na­tional pay­ments, in­di­cated by its for­eign ex­change reserves, also sta­bi­lized given that the reserves stayed around $3 tril­lion (2.7 tril­lion eu­ros; £2.3 tril­lion) in re­cent months. In fact, China’s for­eign ex­change reserves have in­creased for three con­sec­u­tive months to reach $3.03 tril­lion.

The April data show that, af­ter reg­is­ter­ing an un­ex­pect­edly high GDP growth of 6.9 per­cent in the first quar­ter of this year, China has man­aged to main­tain the ba­sic mo­men­tum of growth. There­fore, it is very likely that China will meet its tar­geted year-on-year GDP growth of at least 6.5 per­cent this year.

But the drop in the pro­ducer price in­dex in April— down to 6.4 per­cent from 7.8 per­cent in Fe­bru­ary and 7.6 per­cent in­March— should make pol­i­cy­mak­ers aware that China’s in­dus­trial ac­tiv­i­ties could weaken in the com­ing months.

And con­sid­er­ing the un­fold­ing ef­fects of the tight­en­ing mea­sures im­posed by lo­cal gov­ern­ments on the real es­tate mar­kets, the down­side pres­sure could be even greater in the last quar­ter of the year.

The area of prop­erty sold grewby 7.7 per­cent year-on-year in April, the low­est since De­cem­ber 2015 and a sharp de­cline com­pared with­March, when it was as high as 14.7 per­cent. But the weak­en­ing sales have failed to thwart in­vest­ment, as China’s real es­tate in­vest­ment de­fied na­tion­wide reg­u­la­tory tight­en­ing to pick up to 9.3 per­cent in the first four months, up from 9.1 per­cent reg­is­tered in the first quar­ter and 8.9 per­cent in Jan­uary and Fe­bru­ary com­bined.

The trend shows that there could be a time lag be­tween the tight­en­ing poli­cies and the slow­down in real es­tate in­vest­ment growth. The ef­fects of the tight­en­ing mea­sures and the tight­en­ing of the over­all mon­e­tary pol­icy across the coun­try could start to bite in the sec­ond half of this year, and thus af­fect over­all growth.

China has also stead­ied real in­ter­est rates in re­cent months and strength­ened fi­nan­cial reg­u­la­tion to strictly man­age pre­vi­ously less-reg­u­lated fi­nan­cial prod­ucts, such as wealth man­age­ment prod­ucts, to ward off fi­nan­cial risks. Such moves have made banks much more cau­tious in ex­tend­ing loans, which could re­strict in­vest­ment in in­fra­struc­ture and other fixed-as­set projects and there­fore dampen over­all eco­nomic ac­tiv­i­ties.

Such a sce­nario, which can­not be ruled out, could un­der­mine the coun­try’s ef­forts to meet its growth tar­get. But given the high growth rate in the first quar­ter of this year, the tar­get growth rate can be achieved even if the econ­omy weak­ens slightly in the sec­ond half. Plus, rel­a­tively slow growth will not rat­tle pol­i­cy­mak­ers, as they have made pre­vent­ing fi­nan­cial risks their pri­or­ity.

At a meet­ing of the Po­lit­i­cal Bureau of the Cen­tral Com­mit­tee of the Com­mu­nist Party of China in late April, the lead­er­ship said the coun­try must make ef­forts to pre­vent fi­nan­cial risks. The meet­ing sent a clear mes­sage that the coun­try will strike a bal­ance be­tween achiev­ing sta­ble eco­nomic growth and en­sur­ing a safe fi­nan­cial en­vi­ron­ment, with the lat­ter be­ing a more ur­gent task.

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