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China’s economy is struggling, but resilient [Copy link] 中文

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Post time 2016-7-21 09:46:01 |Display all floors

China's National Bureau of Statistics released economic data for the first half of 2016 in mid-June. In general, there are a few economic bright spots, but they look small compared to the country's economic challenges, that suggest there will be a number of difficulties in China's economic prospects.
Analysis of the economic data points out four positive trends in the country's economy.
First, China's economic growth hasn't completely stalled. The economy grew 6.7 percent in the second quarter, the same as the previous three-month period, putting a halt to the declining trend seen in the six previous quarters. Yet, it remains to be seen whether this is the start of a modest recovery. Amid a weak international economy and with China's transition to a new normal, it won't be easy to achieve a consistent growth rate.
Second, China's economic structure has been optimizing. On the supply side, growth in the country's tertiary sector for the second quarter stood at 7.5 percent, more than 1 percent higher than the secondary sector which posted growth at 6.3 percent. On the demand side, household consumption has continued to steadily increase, with retail sales in June growing to 10.6 percent, up from 10 percent in May.
Third, in looking at the consumer price index (CPI) and producer price index (PPI) over the past months, the gap between the price for consumer goods versus price for the products leaving factories has narrowed, which is a good sign for future economic growth.
Fourth, signs to stabilize the yuan exchange rate have surfaced. The yuan has faced even greater depreciation pressure following the UK referendum result. But such behaviors suggest that the new working mechanism of the exchange rate has become increasingly transparent and predicable. Amid global uncertainties, China increased foreign reserves in June, demonstrating that as long as China does not panic over yuan depreciation or capital flight, the monetary authority will find it less necessary to intervene in the exchange rate.
But the bureau's report shows that there are a number of economic challenges that will need to be addressed.
Private investment appears to be in freefall, mainly as a result of the overall slump along with pessimistic sentiment from Chinese entrepreneurs. From January to June, China's nominal fixed-assets investment growth from the private sector fell to a record low of 2.8 percent. During the same period, the percentage of private investment for all fixed-assets investment, excluding rural households, dropped to 61.5 percent, a new low in recent years.
The property investment growth has also taken a downward trend. Property and infrastructure investment both proved to be key drivers that helped sustain growth in first half. But statistics show that the nominal growth of property investment year-on-year has fallen since April. From January to April, the nominal growth of property investment was at 7.2 percent while the growth rate declined to 6.1 percent during the January to June period, which is lower than the 9 percent for total nominal growth of fixed-assets investment excluding rural households during the same six-month period. In this regard, it will be difficult to boost the economy through reliance on infrastructure investment.
Over the first six months, the outlook for exports became negative. In dollar terms, exports in June fell 4.8 percent year-on-year, and imports during the same period declined 8.4 percent, leading to a   surplus of $48.1 billion. The circumstance of a large decrease in imports and weak demand, indicate that this is a recessive-type trade surplus. In the second half, as the global economy is likely to continue to be sluggish and the world's currencies are expected to undergo competitive devaluations, it will be difficult to achieve growth in exports.
The government also faces increased pressure from fiscal expenses and fiscal revenue. The country's fiscal revenue for June rose 1.7 percent year-on-year, one of the lowest growths in years. Meanwhile, China's fiscal spending for June grew by 19.9 percent year-on-year. Data show that China is expected to face greater fiscal pressure in the second half.
Lastly, the incremental effect of monetary and credit policies is reducing. As the central bank has continuously released liquidity into the financial system, yuan-based bank loans issued in 2016's first half stood at 7.53 trillion yuan ($1.13 trillion), an increase of 967.1 billion yuan from a year earlier. But there is a severe reluctance to make loans to companies from traditional industries.
Meanwhile, the weak economy has meant there is a diminished financing demand from companies. In this regard, the enormous credit injection hasn't been directed to companies and the real economy, while the effect of loosened credit policies has grown weaker.
The risk that China's economic growth will stall and that the economy will head for a hard landing is slim. But undeniably, the outlook for the second half of the year is tough. Restoring the confidence of private entrepreneurs will depend on the implementation and execution of existing policies.
The author is the director of the Macroeconomic Center at the Suning lnstitute of Finance. (the Global TImes)

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Post time 2017-8-13 08:06:49 |Display all floors
Good summary.

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