With the pro-growth measures implemented by the central and local governments bearing fruits, China’s economy is expected to grow 7.6% in the second half of the year, possibly achieving the full-year GDP target of around 7.5%.
The forecast is based on key economic data for the first half, the government’s economic restructuring resolve and the financing support for the real economy. In the first quarter of this year, GDP growth slowed down to 7.4% year-on-year. But this downward trend was basically checked in the second quarter amid various targeted and mini-stimulus measures, with the economy gaining momentum and growing by 7.5%. Another two indicators pointing to a stabilizing economy are inflation and employment.
In the first half of this year, Consumer Price Index rose 2.3% year-on-year, far below the full-year goal of 3.5% set at the beginning of the year. The CPI hovered between a range of 1.8% and 2.5% during that period. In the first half, more than 7 million new jobs were created in towns and cities, and this was equivalent to 73.7% of the full-year employment target. The rising employment amid a slowing economy showed that the government’s macro-control capability was improving.
In the first half, progress also was made in economic restructuring and upgrading, which is an important task in the new era. The improvement could be illustrated by the following facts.
First, the proportion of the added value of the tertiary (services) industry in the GDP amounted to 46.6% in the first half, 1.3 percentage points higher than in the same period a year earlier, and the growth rate of the services industry was 8%, higher than the GDP growth. This is an evidence showing the industrial structure is being optimized amid economic restructuring and upgrading.
Second, the contribution by consumption to GDP was 54.4%, 5.9 percentage points higher than that generated by capital and investment. This was a new trend, indicating that consumption has become a new driver to the country’s economic growth.
Third, high-tech industry and high-end manufacturing industry maintained momentum for growth. Driven by new technologies and technological innovations, the development pace of high value-added industries and emerging strategic industries accelerated. In the first six months, the growth rate in added value of high-tech industry was 12.4%, 3.6 percentage points faster than the average of industrial enterprises at the designated scale.
And fourth, the income gap between urban and rural residents was further narrowed. In the first six months, the actual growth in per capita cash income of rural residents was 2.7 percentage points higher than the growth of disposable income of urban residents, and the income gap between urban and rural residents further shrank by 0.06 from a year earlier to 2.77. Furthermore, the growth rate of residents’ average income was two percentage points and one percentage point faster than the growth rates of fiscal revenue and corporate profits, respectively, and this indicated that residents are sharing the fruits of economic growth.
In the first half, the financing system effectively played its role in supporting the growth of the real economy, with credit supply and social financing data all beating expectations. The central bank also flexibly applied various monetary policy tools to maintain an appropriate level of liquidity.
At the end of June, the outstanding amount of M2, or the broad money supply, was 120.96 trillion yuan, a year-on-year growth of 14.7%. The growth rates for M2 in March, April and May were 12.1%, 13.2% and 13.4%, respectively, showing a steady pace of accelerated money supply to shore up the economy.
In this period, the scale of social financing also expanded remarkably. In the first six months, social financing amounted to 10.57 trillion yuan, a record high, or 414.8 billion yuan more than the same period of last year. The amount was even 2.08 trillion yuan higher than in the same period of 2009 and 2010, when the country was battling the spillover effect of the global financial crisis.
At the end of June, the balance of yuan loans was 77.63 trillion yuan, an increase of 14% year-on-year, or an increase of 659 billion yuan from a year earlier. The loan structure was also further optimized, as evidenced by higher loan growth rate in the western region than in the central and eastern regions, faster rise of medium- and long-term loans for enterprises, rapid increase in agriculture-related loans, significant rise in loans to small and micro enterprises, and rising loans to government-subsidized housing projects, and a dropping growth rate in medium- and long-term loans to industries with excess capacity.
In the second half of the year, with stimulus measures being implemented and favorable internal and external factors emerging, the economy could develop faster, and the full-year target of 7.5% GDP growth is within reach.
The favorable factors for the acceleration of economic growth include a recovery in global economy, which will help drive China’s exports, the central government policies to stabilize and promote growth, local governments’ enthusiasm in implementing mini-stimulus measures, and a rising electricity consumption, which is a key indicator for a warming economy.
In the first half of the year, power use rose 5.3% year-on-year. And in April, May and June, the growth rates were 4.6%, 5.3% and 5.9% respectively, and the month-on-month rise in electricity consumption bodes well for the expectations for a stabilized and accelerating economy in the second half of the year.
The central government recently pledged to achieve the social and economic goals set at the beginning of the year, and called for the construction of a comprehensive, integrated transport system and the development of the maritime and land “Silk Roads” and the Yangtze River economic belt. With the central government showing a strong resolve in achieving the growth goals, local officials are more enthusiastic in bringing local economies back to the growth path. These could translate into growing infrastructure investments and consumption.
Real estate market, however, is an unfavorable factor, which might drag the economic growth. In the first six months of this year, investment in the property market rose 14.1% year-on-year, a drop of 6.2 percentage points from a year earlier, and housing sales and sales value declined 6% and 6.7% respectively. Housing prices in the second- and third-tier cities are on a declining trend. Since the realty sector has a direct bearing on a number of industries, adjustments in the housing market may have a negative impact on GDP growth.
But with the pro-growth approach by the central and local governments producing the anticipated effects, the economy in the second half of the year is expected to grow faster than in the first half, probably at 7.6%, and this means that the full-year target of 7.5% could be attained.
Qi Jingmei is a researcher at the department of economic forecasting at the State Information Center.
