The China Pilot Free Trade Zone Wuhan Area in Hubei Province Photo: XINHUA

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China has generated a 6.3% growth of GDP in the first half of 2019, according to the NBS. Lian Ping, Bank of Communications chief economist, said that facing declining global economic growth and increasing uncertainties, China’s GDP growth rate in the second quarter slowed by 0.2 percentage points from the first quarter. As for June, however, investment, consumption and industrial added value all started to bounce back. For example, there was a stable demand for investment in June. The investment growth rate outpaced 0.2 percentage points over the first five months of 2019. Investment growth for the manufacturing industry was 3%, but the index has rebounded for two consecutive months.

“In the long run, the moderate slowdown in economic growth in recent years is a normal phenomenon as the Chinese economy undergoes a stage of transformation and upgrading. The priority is for China to incrementally improve the quality of economic growth,” Lian said.

In the first half of the year, the added value of the tertiary industry accounted for 54.9% of GDP, a 0.5 percentage point growth year over year and 15 percentage points higher than the secondary industry, according to the NBS. Lian said that China’s economy is operating in a reasonable range, and the supply-side structural reform and the macro-policy counter-cyclical adjustment are taking effect. He predicted that the economic operation in the second half of the year will continue to advance steadily. Potential fluctuations could take place due to external uncertainties, but the economy will stay between the target growth of between 6% and 6.5%.

In the second half of the year, Lian suggested moderately expanding counter-cyclical adjustment of macroeconomic policies. In terms of fiscal policy, China should implement a 2 trillion yuan tax or fee reduction and lessen the burden on the real economy, especially the manufacturing industry. It should emphasize the role of special local government bonds in expanding demand and stabilizing growth. In terms of monetary policy, appropriate marginal relief and targeted support deserve consideration.

 

Investment
In the first half of the year, the country’s fixed asset investment (excluding farmers) totaled 29.9 trillion yuan, a year-over-year increase of 5.8%. Of this, private fixed asset investment amounted to 18 trillion yuan, a year-over-year growth of 5.7%.

Liu Xiangdong, deputy director of the Economic Research Department of the China Center for International Economic Exchanges, said that the investment growth rate in the first half of the year has been stable, because the country has curbed the decline in growth rates of private investment, manufacturing investment and infrastructure investment. Such indexes have begun to rebound. In general, market expectations, the number of new orders and investment confidence are stabilizing.
 

At the same time, the investment structure is also optimizing. Regarding external factors, Liu attributed this to the reduction in uncertainty in China’s trade friction with the US, the loose global monetary policy and return on foreign capital. The internal cause is that there is no dramatic change in the fundamentals of China’s macroeconomy. In the short term, counter-cyclical adjustment and fiscal policy will be strengthened, and the monetary policy will be moderately tightened. These measures will produce results after implementation. In the long run, the demand for upgrading China’s consumption model is still strong. The process of urbanization is far from over, and dividends from the reform and opening up are yet to be fully realized.

“The investment growth rates of the second half, or for the whole year, are expected to remain at more than 6%. In particular, the current infrastructure investment has a sluggish growth rate of 4.1%, but it is expected to rise in light of a future increase in financial investment. The growth rates of manufacturing and private investment have begun to rebound,” Liu added.

 

Industrial development
In the first half of the year, the output growth of industries with annual revenue of 20 million yuan or more from their main business operations increased by 6% year over year, although the growth rate dropped by 0.5 percentage points from the first quarter. In June, the output growth of industries with annual revenue of 20 million yuan or more from their main business operations expanded by 6.3% year over year, up 1.3 percentage points from May.

Su Jian, director of the National Economic Research Center of Peking University, held that the development momentum of the high-tech industry in the first half of the year was vigorous due to the rapid growth of investment. “Higher investment growth has promoted the fast progress of the high-tech industry and become the biggest highlight of domestic industrial development in the first half of the year,” Su said that the motivation for investment has manifested in both internal and external factors. As for internal factors, improving the economic structure has remained the approach to macroeconomic regulation and control as the structural reform of the supply side advances.

Investment has also been driven internally by ecological protection and environmental governance. For example in the case of vehicle sales, while there has been negative growth overall, the sale of new energy vehicles has surged, thus influencing the motivation of corporate investment. The external factor refers to the trade friction between China and the US that has forced domestic companies to spend more money on high-tech industries to gain technological independence, Su added.

 

Foreign trade
If calculated in US dollars, China’s foreign trade exports increased by 0.1% in the first half of the year. Liang Ming, director of the Institute of Foreign Trade under the Chinese Academy of International Trade and Economic Cooperation, said that this result was achieved in the context of sagging world economic growth and mounting global economic and trade frictions. This growth may be small, but it is difficult to achieve.

In 2018, China’s total import and export volume expanded by 12.6% year over year, reaching a record high of $4.6 trillion. Since the beginning of this year, the impact of China-US economic and trade friction on the global value chain, industrial chain, and supply chain has been emerging and has begun to affect global trade. In the first half of the year, China’s export growth managed a small gain in the face of the prior huge scale of imports and exports and the unfavorable global trade environment. Also, from a global perspective, many countries in the first half of this year have shown a downward trend in export volume. For example, in the first five months of this year, South Korea’s exports fell by 7.4% year over year, Japan’s exports declined by 6.2% and US exports reduced by 0.14%.

In the first half of the year, based on a steady increase in the scale of foreign trade, China’s export and import structure has been comprehensively honed. The proportion of private enterprises in foreign trade exports has exceeded 50%, and the export of private enterprises has been growing substantially in the first half of the year. At the same time, the proportion of general trade has been enlarged steadily. Furthermore, during this period, China’s exports to the United States fell by 8.1%, but there has been an upturn in its exports to ASEAN member states, the EU, Japan and other countries.

Liang said that ever since 2018, China has successively introduced a series of measures to stabilize foreign trade. Recently, the State Council executive meeting put forward relevant methods, including those to improve fiscal and taxation policies, strengthen financial support, develop new trade formats and make trade services more convenient. These measures are very targeted. There are many policies yet to be introduced that will aim to stabilize foreign trade during the second half of the year.

From a holistic perspective, Liang said that China’s exports have a strong price and commodity competitiveness, and many countries need to purchase Chinese goods. Even if the global economy is slowing down, the diversity and price of Chinese export commodities can satisfy most countries’ demands. In light of these circumstances, we are confident in the future growth of foreign trade.

 

This article was edited and translated from Economic Daily.

​edited by MA YUHONG