Local growth bottoms out in second quarter
First-half growth slowed in many provinces this year, although it picked up in the second quarter compared with the first as top-down stimulus measures kicked in and local governments took pro-growth steps of their own.
Of the 11 regions that have so far released first-half GDP statistics, just one — the northwestern province of Qinghai — achieved double-digit expansion.
The overall low level of growth was very unusual in the past few years. Western regions, whose growth rates easily surpassed 10 percent previously, have descended into single-digit territory, with GDP growth slipping by as much as 3.7 percentage points compared with 2013.
However, almost all regions delivered a better performance in the second quarter than the first, with just one exception: Xinjiang’s growth in the first half slowed by 0.2 percentage point over that of the first quarter alone.
Southwestern Yunnan province experienced the largest improvement, with growth accelerating from 7.7 percent in the first quarter to 8.4 percent for the first six months. Economic powerhouse Guangdong saw its growth rise from 7.2 percent to 7.5 percent.
Other regions’ first-half growth rates edged up 0.1 to 0.4 percentage point.
Regional governments did not provide separate growth data for the second quarter.
The marginal improvements are being mainly attributed to a raft of stimulus measures adopted since April. These measures, including more spending on railways, public housing and infrastructure, helped arrest the significant slowdown in the first quarter, analysts said.
China’s economic growth picked up slightly to 7.5 percent in the second quarter.
Recent signs indicated that Premier Li Keqiang is increasingly serious about the 7.5 percent annual growth target. He said last week the government “must ensure” the goal is met.
The unexpectedly hefty increase in bank loans in June was taken as a signal of the government’s seriousness. Chinese banks lent 1.08 trillion yuan ($174 billion) in June, nearly 20 percent above market expectations. Fiscal spending in June surged 26.1 percent, after a 24.6 percent expansion in May.
Local governments’ pivot to growth also played a role. In a sign of growing frustration over local governments’ inertia in implementing the pro-growth and reform directives, the State Council sent eight inspection teams around China in late June.
In a meeting last week, local officials were criticized by the cabinet for being “lazy and slack” as officials kept their heads down to stay out of trouble during the anticorruption campaign.
In recent weeks, regional governments have announced their own versions of “stimulus” programs. Northern Hebei province will invest 1.2 trillion yuan in a range of areas including railways, energy and housing. Northeast Heilongjiang will spend more than 300 billion yuan over two years in several sectors, including infrastructure and mining.
Guangzhou, capital of Guangdong province, will invest 800 billion yuan in the next few years to upgrade its urban infrastructure, mostly transportation.
Local governments have also been active in approaching the National Development and Reform Commission to secure approval for large-scale investment projects. Officials from Hubei, Jiangxi and Sichuan visited the top economic planner hoping to speed up approval of their applications for such projects, Chinese media reported.
“This is one of many clear signs that the economy is still relying on debt-fueled spending to maintain growth,” said Stephen Green, Standard Chartered Plc’s head of China research, who estimated total debt has climbed to 251 percent of the country’s GDP.
Wang Tao, chief China economist at UBS AG, said local investment plans are relatively small compared with nationwide totals and it is hard to judge whether the spending is new or part of earlier plans.
But “as the most direct way to boost investment and growth, increased investment in infrastructure and public services will be an indispensable part of the policy mix,” said Wang.