Econ­omy heals as com­pa­nies re­vive

China Daily (Hong Kong) - - BUSINESS - By CHEN JIA chen­jia1@chi­nadaily.com.cn

The econ­omy ap­pears to have staged a mod­est re­bound last month that will con­tinue through the sec­ond half, driven by bet­ter cor­po­rate con­di­tions along the eastern coast, a toplevel govern­ment econ­o­mist said.

GDP growth in the sec­ond half may ac­cel­er­ate, but not by much, with the fig­ure ex­pected to be near 7.5 per­cent, Fan Jian­ping, chief econ­o­mist at the State In­for­ma­tion Cen­ter un­der the National De­vel­op­ment and Re­form Com­mis­sion, told a news con­fer­ence on Wed­nes­day. The cen­ter is a govern­ment think tank.

Op­er­at­ing con­di­tions have im­proved lately for com­pa­nies in eastern re­gions of the coun­try, Fan said. That was partly re­flected in the rate of in­dus­trial out­put growth in July — 9.7 per­cent, the fastest speed in five months.

He de­scribed the sit­u­a­tion as “com­plex but sta­ble over­all” in the first seven months.

“China will not ex­pe­ri­ence an eco­nomic cri­sis as long as growth re­mains above 7 per­cent,” Fan stressed.

“Be­cause the po­ten­tial eco­nomic growth rate is es­ti­mated at about 8 per­cent, chas­ing dou­ble-digit growth now is in­com­pat­i­ble with the real sit­u­a­tion.”

Growth of the world’s sec­ond-largest econ­omy has run be­tween 7.4 and 7.9 per­cent for five quar­ters now, and that will be the “new nor­mal” for the long term, Fan said.

He said the weak global re­cov­ery, to­gether with the do­mes­tic eco­nomic struc­tural ad­just­ment, will mean pres­sure in the near term.

Dur­ing that time, the govern­ment is de­ter­mined to fo­cus on re­vi­tal­iz­ing com­pa­nies, in­stead of stim­u­lat­ing fixedas­set in­vest­ment.

The State Coun­cil, the cabi­net, an­nounced sev­eral steps af­ter first- half and sec­ondquar­ter eco­nomic in­di­ca­tors were re­leased. Chief among those in­di­ca­tors was GDP growth, which slid to 7.5 per­cent in the sec­ond quar­ter from 7.7 per­cent in the first.

The mea­sures in­cluded sus­pend­ing taxes for small busi­nesses, boost­ing in­for­ma­tion con­sump­tion and pro­mot­ing rail­way in­vest­ment in the sec­ond half.

“That is not a new stim­u­lus pack­age,” said Fan. He said it was “quite dif­fer­ent” from the ag­gres­sive, 4 tril­lion yuan ($653 bil­lion) in­vest­ment plan that fol­lowed the global fi­nan­cial cri­sis in 2008.

All the mea­sures an­nounced so far are in line with the 12th Five- Year Plan ( 2011- 15), ac­cord­ing to Fan.

“We can ex­pect more on eco­nomic re­forms in the sec­ond half, es­pe­cially that the govern­ment will ad­di­tion­ally re­move ad­min­is­tra­tive ap­proval re­quire­ments for en­ter­prises.”

Wang Tao, chief econ­o­mist in China with UBS AG, said that the pickup in July may re­flect to some ex­tent the de­layed im­pact of strong credit growth ear­lier in the year.

“It has also been helped by im­proved con­fi­dence af­ter the govern­ment’s an­nounce­ment that it would sup­port growth with some fine-tun­ing mea­sures,” she said.

“But the re­cov­ery will de­pend on the strength of ex­ter­nal and do­mes­tic de­mand, as well as fu­ture poli­cies, and it is go­ing to be mod­est.”

As to the ex­ter­nal en­vi­ron­ment, head­winds will come from mod­er­ate re­cov­er­ies in the United States and Europe, as well as un­cer­tain­ties in emerg­ing mar­ket growth, es­pe­cially when de­vel­oped coun­tries such as the US phase out quan­ti­ta­tive eas­ing.

On the do­mes­tic front, China is still one of the places in the world with a fast-grow­ing con­sump­tion growth rate, and that will be a key driver of the econ­omy. In­vest­ment in projects to im­prove liv­ing stan­dards, such as low-in­come hous­ing, will not be scaled back, even though the cen­tral govern­ment’s fis­cal in­come growth has slowed, Fan said.

Stephen Green, chief econ­o­mist in China at the Stan­dard Char­tered Bank, said that he ex­pected no change in the cen­tral bank’s one-year bench­mark in­ter­est rate be­fore the end of 2014.

More re­forms are ex­pected to lib­er­al­ize in­ter­est rates, be­cause the cur­rent be­nign in­fla­tion en­vi­ron­ment of­fers good op­por­tu­ni­ties, Green said.

In the first seven months, the aver­age con­sumer price in­dex was 2.46 per­cent, much lower than the year’s tar­get of 3.5 per­cent.

ZHANG YANLIN / FOR CHINA DAILY

A road un­der con­struc­tion in Bozhou, Anhui prov­ince. The cen­tral govern­ment will in­crease in­vest­ment in such projects to im­prove liv­ing stan­dards and up­grade cities’ in­fra­struc­ture. Rail­way con­struc­tion will also be ac­cel­er­ated in the sec­ond half.

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