Rosy data lays ground for steady growth

Fears of a fur­ther de­cline eased by fig­ures about in­dus­try, ex­port

China Daily (Hong Kong) - - BUSINESS - By ZHENG YANGPENG zhengyang­peng@ chi­

China’s up­beat eco­nomic data in July eased fears the econ­omy might fur­ther dip, and lays the ground for Pre­mier Li Ke­qiang to fo­cus on re­vamp­ing the model that is con­sid­ered to be cru­cial to China’s sus­tained growth, an­a­lysts said.

The slew of eco­nomic data beat ex­pec­ta­tions. In­dus­trial out­put for com­pa­nies with an an­nual rev­enue of 20 mil­lion yuan ($3.2 mil­lion) or more saw a 9.7 per­cent year- onyear growth in July, up from June’s 8.9 per­cent growth. It was the high­est in­crease since March. Ex­ports rose 5.1 per­cent in July from a year ear­lier, while im­ports were up 10.9 per­cent, end­ing the de­creases in June for both fig­ures.

“July’s data showed signs the econ­omy is sta­bi­liz­ing. Over­all de­mand is also sta­bi­liz­ing,” said Wang Yuwen, an an­a­lyst with the re­search and de­vel­op­ment depart­ment of Bank of Com­mu­ni­ca­tions.

Most econ­o­mists be­lieve the econ­omy is sta­bi­liz­ing, brush­ing aside the gloomy out­looks from just a few weeks ago. Fears that the econ­omy would fur­ther de­te­ri­o­rate in the third quar­ter prompted Pre­mier Li to vow to de­fend the “lower limit” of eco­nomic growth, pre­vent­ing growth from slip­ping be­low 7 per­cent.

Al­though China has re­peat­edly said “ad­just­ing the eco­nomic struc­ture” and “sta­bi­liz­ing growth” are not mu­tu­ally ex­clu­sive, econ­o­mists feared that progrowth mea­sures would shift the fo­cus while the new lead­er­ship is push­ing ahead re­forms that are needed for long-term growth

China has rolled out a num­ber of mea­sures since the mid­dle of 2013 to help small firms. Start­ing on Aug 1, small com­pa­nies with monthly rev­enue of less than 20,000 yuan were ex­empted from value-added tax and busi­ness tax.

Ad­di­tion­ally, the Min­istry of En­vi­ron­men­tal Pro­tec­tion an­nounced a plan to fight air pol­lu­tion, which will cost 1.7 tril­lion yuan in the next five years. An­other plan to im­prove wa­ter qual­ity is in the mak­ing, which is ex­pected to cost 2 tril­lion yuan.

Derek Scis­sors, a fel­low with Wash­ing­ton-based Her­itage Foun­da­tion, said the tax sus­pen­sion for small busi­ness is “the most promis­ing” mea­sure among all of the re­cent moves.

The en­vi­ron­men­tal in­vest­ment mea­sures are larger ver­sions of what was an­nounced be­fore. En­vi­ron­men­tal im­prove­ment would be wel­come but such spend­ing does lit­tle for the econ­omy, he added.

Guan Qingyou, as­sis­tant dean of the Min­sheng Se­cu­ri­ties Re­search In­sti­tute, also said the mea­sures to clean up the en­vi­ron­ment can’t be re­garded as a “stim­u­lus”. “That’s what should have been done in the first place,” he said.

He added the mar­ket has largely mis­un­der­stood the mes­sages re­leased by the top lead­ers: while pro- growth mea­sures have and will be adopted in some se­lec­tive ar­eas, the cen­tral line of the eco­nomic pol­icy is re­form.

“The top lead­er­ship has re­freshed their mind­sets while the mar­ket still con­sid­ers things in old-fash­ioned ways,” he said. “The mo­tif now is dereg­u­la­tion.”

An­a­lysts said that the mea­sures in­tro­duced are quite dis­tinct from the large-scale stim­u­lus pack­age rolled out in the wake of the global fi­nan­cial cri­sis in 2008.

“The top lead­ers re­al­ized that the pre­vi­ous large-scale stim­u­lus pack­age with­out struc­tural ori­en­ta­tion was not work­able. So this round of pro-growth mea­sures tar­geted spe­cific sec­tors, with an aim to ad­just the eco­nomic struc­ture and re­bal­ance the econ­omy,” said Wang.

“In terms of com­par­i­son with 2008-09, the pro­gram then was largely about higher bank lend­ing. If lend­ing can re­main un­der con­trol, the harm done by the 2008-09 ac­tions will not be re­peated,” Scis­sors said.

But will the new mea­sures add to the lever­ag­ing of China, which is al­ready at a high level?

“Whether to de- lever­age or not de­pends on spe­cific sec­tors. The top lead­ers might have re­al­ized the de- lever­ag­ing ac­tions in the sec­ond quar­ter were a bit over­done. De- lever­ag­ing should be a grad­ual process,” Guan said.

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