Policy Watch

Chinese economy stable at New Normal levels

2016-7-27 13:41:55

Amid the complex international environment and domestic downward pressure in the first half of the year, China’s economy has continued running in a stable way, in keeping with the New Normal. Efforts such as the supply-side structural reform and mass entrepreneurship and innovation have paid off as the economic structure continues to be optimized and the gathering momentum of new driving forces are causes for optimism.

Major indexes remain stable

Due to proactive financial and monetary policies, major indexes concerning economic growth, employment and prices, income and consumption, and agriculture saw steady development.

In the first half of this year, China’s GDP reached 34.06 trillion yuan ($5.09 trillion) with a 6.7 percent year-on-year growth. The service industry witnessed rapid development as its added value increased 7.5 percent year on year. Industrial production remained stable as added value of industries above the designated scale saw 6 percent year-on-year growth.

China’s 6.7 percent growth is not an easy achievement. But it is indeed a good performance compared with major economies, such as the United States, Eurozone, and Japan whose economic growths in 2016 are estimated by the World Bank to be 1.9 percent, 1.6 percent, and 0.5 percent, respectively.

Driven by the rapid development of the service industry, the job market is better than expected. In the first half of the year, 7.17 million urban jobs were added, accounting for 71.7 percent of this year’s target, and the unemployment rate of 31 major cities is stable at 5 percent.

Prices of commodities and people’s income are also stable as in the first half year, the consumer price increased 2.1 percent year on year and national residents’ per capita disposable income reached 11,886 yuan with 8.7 percent year-on-year growth.

The added value of primary industry witnessed a 3.1 percent year-on-year growth. Yield of summer crops saw harvests. According to preliminary estimation, national yield of summer crops reached 139.3 million tons, the second-highest level on record.

Economic structure continues to be optimized

The service industry has become the largest industry of China, serving as a major driving force for economic development and new jobs.

In the first half year, the added value of tertiary industry accounted for 54.1 percent of national GDP and its growth rate is 1.4 percent points higher than secondary industry.

From the perspective of industrial development, growth rates of high-tech industries and equipment manufacturing industries reached 10.2 percent and 8.1 percent, higher than the development of traditional industries.

Facing weak international trade and unstable exports, China has made great progress to expand domestic demand and promote domestic consumption. Economic growth is now mainly driven by domestic demand and consumption.

In the first half year, final consumption contributed 73.4 percent to economic growth, 13.2 percent higher than the same period last year.

Consumption in education and cultural entertainment and health care also improved, and were 0.3 percent higher than the same period last year.

At the same time, the government paid close attention to weak points and major sectors in economic development and investment structures continue to be improved.

In the first half year, investment in high-tech industries and services increased 13.1 percent and 11.7 percent year on year, 4.1 percent and 2.7 percent higher than all kinds of investments respectively.

Regional developments also saw progress under major development strategies such as the Belt and Road Initiative, the coordinated development of Beijing, Tianjin, and Hebei province, and ecological protection along the Yangtze River economic belt.

In the first half year, the added value of industries above the designated scale and fixed-asset investment in eastern regions witnessed 6.4 percent and 11.0 percent growth respectively.

The growth rate of value added to industries above the designated scale in central and western regions were 0.9 percent and 0.8 percent higher than in eastern regions respectively, while the fixed-asset investment growth rate in central and western regions were 1.8 percent and 2.5 percent higher than the eastern growth.

Capacity reduction saw developments too as in the first half year coal production decreased 9.7 percent year on year and raw steel production lowered 1.1 percent.

With regards to inventory reduction, inventory of industries above the designated scale decreased 1.1 percent year on year at the end of this May and commercial residential buildings for sale decreased 7.53 million square meters at the end of this June.

With respect to deleverage, the debt ratio of industrial enterprises above designated scale was 56.8 percent, 0.5 percent lower than the same period last year.

Due to the implementation of a valued-added tax reform, it is estimated that it will help reduce 500 billion yuan for enterprises this year.

Investments in weak sectors witnessed rapid development as investments in water conservation and environment and public facility management, information transmission software and information technology service industry, and agriculture, forestry, animal husbandry and fishery industries increased 26.7 percent, 22.5 percent, and 19.5 percent respectively.

New impetus to the economy is growing

During the period of economic transformation, governments have been cutting red tape and enhancing public services, boosting innovation and entrepreneurship. With all these efforts, a new impetus to Chinese economy is growing. Although the “new economy” cannot catch up with traditional economy in scale, it is making a greater contribution to GDP, social employment and industrial upgrading.

With administrative reforms being implemented, more companies have been started. In the first half of this year, 14,000 companies were started in China per day on average, which surpasses last year’s number. Among those companies started, many belong to emerging service industry and small or micro enterprises.

In addition, companies have been paying more attention to research and development. The number of patents licensed in the first half year is 164,000, increasing by 41 percent year on year.

Apart from new companies, new industry is also growing rapidly in China. The emerging industries which enjoy advanced technology are growing faster than traditional industry. In the first half year, the volume of emerging industries increased 11 percent year on year, which is 5 percent higher than that of the entire industries.

Among the emerging industries, e-commerce deserves special attention. Online shopping, express delivery and mobile payment are changing the way people consume. In the first half year, the online retail sales of commodities grew 26.6 percent, accounting for 11.6 percent of the total amount of social consumption; and the volume of express delivered is 13.1 billion, increasing 55.4 percent year on year.

Following the trend of industrial and consumption upgrading, the high-tech products on electronic information, biology, smart manufacturing, clean energy, environmental protection and others also brought new impetus to the economy. The first half year saw progress of the following industries: 88.7 percent increase in new energy cars output, 28.2 percent increase in industrial robots, 28 percent increase in solar cells, 20.5 percent increase in smart televisions, etc.

New business models based on technologies like big data, cloud computing and the internet of things are constantly being created. In the service sector, there is long-distance education, online medical care, digital family, smart community and so on, which broaden consumers’ choice to a large extent.

In new industries, the sharing economy is seen as a game changer. Many companies practicing the sharing economy just like Uber and Airbnb are created in China in fields such as transportation, marketing, investment, catering and accommodation.

The quality of the Chinese economy is improving

By implementing supply-side reform and making systematic policies, the governments have been trying to sweep away obstacles to economic development and to improve the quality of the economy.

With the slowing down of the production and investment of industries that have excess capacity, the efficiency of China’s energy use is enhanced and the energy consumption structure optimized. In the first half year, coal consumption as a proportion of total energy consumption declined by 2.9 percent year on year; the proportion of clean energies, including hydropower, nuclear power and wind power, increased by 2.0 percent. The energy consumption per 10,000 yuan of GDP in H1 declined by 5.2 percent.

The pressure of deflation in the Chinese industry has eased to some extent. In June, the price of some important industrial products, such as coal, cement and glass, rose up compared with May. On June 30, the average price of domestic steel increased 18.7 percent compared with the beginning of this year.

From this year on, the profit of industrial enterprises keeps growing, a recovery compared with last year when their profit declined. From January to May, the profit of industrial enterprises above designated scale increased 6.4 percent year on year.

The government is trying to take targeted measures to help people lift themselves out of poverty. Many people living in poor regions have been relocated for better living conditions and offered more job opportunities. In first half year, 340,000 relocated people had received vocational training, with 120,000 new jobs created for them.

Social security and public service are also improving. The number of people participating in basic medical insurance keeps increasing.

In addition, the rebuilding of slum areas is progressing smoothly, with over four million houses being renovated in the first half year.


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