Strong and Steady: The Growing Chinese Economy

As the global economy has slowly recovered, China expanded its GDP by 6.9 percent year-on-year in the first half of 2017 with deepened supply-side structural reform. Every key indicator produced numbers better than expected. With more visible momentum, the Chinese economy will sustain steady growth at medium-to-high speed.

As it enters a “new normal” phase, the Chinese economy features stronger vitality of entities and momentum in macroeconomic development, improved supply-demand relations and corporate profitability, brighter market expectations and industry outlooks, steady growth and better livelihood.

Measures to promote the supply-side structural reform, which include cutting overcapacity, destocking, deleveraging, cutting corporate costs and shoring up weak economic links, have yielded promising results. By the end of May, China had completed 84.8 and 65 percent of its target to cut overcapacity of crude steel and coal, respectively, commercial residential housing for sale had dropped 8.5 percent year-on-year, and debt-to-asset ratio of industrial enterprises above the designated size had dropped 0.7 percentage points. Improved production and management led to better profitability. The primary business revenues and profits of industrial enterprises above the designated size grew by 13.5 and 22.7 percent year-on-year, respectively, from January to May of this year.

Brighter market expectations have injected momentum into the real economy. As of June, the Purchasing Managers’ Index (PMI) of China’s manufacturing industry was above 50 percent for 11 consecutive months which indicates expansion, and China’s Non-Manufacturing Index (NMI) followed the same trend, remaining above 54 percent for nine consecutive months.

Stronger policies have increased terminal demand in China, making enterprises more capable to invest and export, and residents more willing to consume. In the first half of this year, infrastructure investment contributed around 46 percent of China’s fixed asset investment, and the growth rate of private investment rose by four percentage points year-on-year. China’s exports stopped shrinking and grew by 15 percent year-on-year while total retail sales of consumer goods benefited from upgraded consumption and grew by over 10 percent year-on-year.

The accelerated shift of driving forces for growth optimized China’s economic structure. In the first half of this year, the tertiary sector played a crucial role as it accounted for over 54 percent of China’s GDP, and stronger domestic demand drove consumption to become a primary engine with final consumption expenditures contributing over 63 percent to economic growth.

Stable pricing, employment and income are ensuring improvement in people’s livelihood. In the first half of this year, the Consumer Price Index (CPI) rose by 1.4 percent year-on-year, with the prices of the other seven major categories of goods and services rising moderately except the declining food price. With 7.35 million new urban jobs created in the period, which accounted for 65 percent of China’s target for this year, the nationwide survey-based urban jobless rate dropped below five percent. Growing along with GDP, China’s per capita disposable income went up by 7.3 percent after deducting price factors.

Recently, global financial institutions including the International Monetary Fund (IMF) upgraded the 2017 growth forecast for the world economy, stating that developed economies will sustain modest recovery while emerging economies will likely stabilize and recover in the second half of the year. As the world economy warms up, China faces less pressure from periodic adjustments since internal growth drivers become strong enough to further release potential.

Although China is gaining more favorable conditions for steady growth, attention should still be placed on negative impact derived from pressure caused by structural conflicts. Measures such as promoting supply-side structural reform, streamlining administration, delegating power to lower levels, and cutting taxes and fees will continue to improve the environment for economic growth. Stronger entrepreneurship and innovation will drive market players forward with new technologies, new industries, new business forms and new business modes. The construction of the Belt and Road, integrated development of the Beijing-Tianjin-Hebei region, the Yangtze River Economic Belt and the Xiong’an New Area will all contribute to the creation of more space for China’s economic growth.

The author is an expert with the economic situation analysis group of the Chinese Academy of Macroeconomic Research.