Exceeding Expectations
Vigorous consumption leaves china confident of annual growth target despite trade friction uncertainties
As the escalating trade dispute between China and the United States casts a shadow over the world’s two largest economies and the global economy at large, the much-anticipated Chinese economic figures for the first half of the year offer some certainty of China’s economic resilience and sustainability, amid mounting instability worldwide.
The Chinese economy expanded 6.8 percent year on year in the first half of 2018, exceeding market expectations. The rate was 6.7 percent for the second quarter, edging down 0.1 percentage point from the previous quarter, with the growth rate within the 6.7-6.9-percent range for 12 consecutive quarters, according to data released by the National Bureau of Statistics (NBS) on July 16. NBS spokesperson Mao Shengyong said the data showed the country’s economic growth remained stable with good momentum.
“Positive factors underpinning high-quality growth are accumulating, laying a solid foundation for achieving the growth target for the whole year,” said Mao. China has set its annual GDP growth target at around 6.5 percent for 2018.
However, external pressures are mounting, and domestic structural adjustment has now reached a critical stage. China should actively boost domestic demand, invigorate the real economy, cope with external challenges and prevent and defuse risks, said Mao. Looking ahead, the Chinese economy will continue the trend of seeking progress amid stability, with the target of 6.5 percent for 2018 as a whole achievable, Xu Hongcai, Deputy Chief Economist of China Center for International Economic Exchanges, told Chinafrica.
“The growth rate is likely to come in at 6.7 percent for 2018, 6.6 percent for 2019 and 6.5 percent for 2020,” said Xu, adding that at this rate, the goal of doubling China’s economy and the per-capita income of its residents from 2010 to 2020 will be accomplished.
Consumption driven
According to Mao, during the first six months of 2018, an optimized economic structure has been reflected in a stronger service sector, the acceleration of industrial upgrading, progress in innovation and green development, and most importantly robust consumption.
The job market was generally stable, with the surveyed urban unemployment rate staying at 4.8 percent throughout June and May, the lowest since 2016. In the first five months, some 6.13 million urban jobs were added, surpassing the figure for the same period in 2017 and making achievable this year’s target of creating 13 million jobs.
In recent years, the upgrading of China’s consumption has been accelerating. Growth in the retail sale of consumer goods has surpassed that of fixed assets investment for 26 consecutive months, evidence of the increasing role of consumption in the Chinese economy. Domestic consumption has been the ballast for growth, its contribution to GDP growth as high as 78.5 percent in the first half of 2018, up 14.2 percentage points from a year ago, according to the NBS.
During this period, the retail sale of consumer goods increased by 9.4 percent year on year, with online retail sales surging by more than 30 percent.
“Judging from major economic indicators, domestic demand has become a decisive force of growth in China,” said Mao, predicting that the stable and sustained growth of consumption will continue in the second half of the year.
Several factors will support steady consumption growth in China. “Residential income has been increasing more quickly and deeper pockets facilitate more spending,” said Mao. “More importantly, the Chinese economy has developed to the stage that consumption upgrading will only speed up, not slow down.”
Trade uncertainties
China’s trade spat with the United States has raised uncertainty about the country’s economic outlook and roiled its financial markets in recent weeks.
The United States began imposing additional 25-percent tariffs on $34 billion worth of Chinese products on June 6, igniting the largest trade dispute in economic history. China was forced to respond in kind, imposing the same tariffs on an equal amount of U.S. products.
According to the World Economic Outlook, a report released by the IMF on July 16, a global growth rate of just 3.9 percent is predicted for this year and the next. “But the risk that current trade tensions escalate further with adverse effects on confidence, asset prices, and investment is the greatest near-term threat to global growth,” an IMF statement said.
“After nearly 10 years of adjustment, the world economy is finally starting to bottom out, entering a phase of recovery and robust growth,” said Chen Wenling, Chief Economist of China Center for International Economic Exchanges. “However, escalating trade tensions could impede recovery, with U.S. unilateral action destroying international trading rules, global industrial and value chains, systems of global governance and Sino-u.s. relations.”
In response to a question on a potential downturn brought about by China-u.s. trade frictions, Yan Pengcheng, Spokesperson for the National Development and Reform Commission, said that the Chinese economy is resilient enough to cope with the shock of uncertainty in the world economy.
“First, China’s economic growth has shifted from an overreliance on investment and exports to relying primarily on consumption and services. Meanwhile, China has sufficient room for policy changes to cope with the fallout of events in the world economy - the fiscal deficit and government debt ratio are relatively low, the capital adequacy ratio at commercial banks is high and corporate debt ratio is in decline. China also has rich experience in dealing with complicated situations,” Yan said at a press briefing on July 17.
Experts say that the rapid growth of imports is set to continue amid the wider push to open up. The Chinese Government has reiterated on many occasions that China does not knowingly pursue a trade surplus and has issued an array of policies to increase imports in an attempt to promote more balanced trade, satisfy people’s demand for consumption and facilitate economic structural upgrading.
Following China’s push to further reform and opening up, cut red tape and implement a nationwide negative list for market access of foreign investment, a growing number of foreign firms have decided to increase their presence in the Chinese market as a result of improved business environment.
On July 10, Tesla, the U.s.-based electric Sedan and SUV manufacturer, signed an agreement with Shanghai Municipal Government for its first overseas plant. The factory, with a planned annual production capacity of 500,000 electric cars, will be the largest foreign-invested manufacturing project in the city’s history.
“The escalation of China-u.s. trade tensions is not in line with the interests of people in either country. Yet the impact should not be overstated because fundamentally, the Chinese economy is driven by domestic demand and its real economy,” said Xu.
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After nearly 10 years of adjustment, the world economy is finally starting to bottom out, entering a phase of recovery and robust growth. CHEN WENLING Chief Economist of China Center for International Economic Exchanges