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Robust first-half growth established on a solid basis

Updated: Aug 7,2015 1:43 PM

For the first half of this year the economy secured 7 percent growth, the highest of the world’s major economies, including the United States, Japan and the eurozone, with average growth rates of 0.8-2.5 percent.

With the absolute amount of growth almost reaching $400 billion, the economy has continued to optimize its structure and serve as the most important force driving global economic development.

Some analysts said the 7 percent increase indicated a higher quality and sustainability for the economy, which is conducive to a stable recovery of the global economy. Others questioned the figure, saying China’s economic performance in the second quarter did not match expectations.

A detailed analysis of the economy in the first half of this year indicates that growth was achieved on solid fundamentals, supported robustly by both demand and supply.

Matching expectations

Some experts and institutions questioned the growth figure because the data did not meet their expectations. Fourteen economists interviewed by the Wall Street Journal predicted a 6.8 percent GDP growth for the economy in the second quarter

Predicting economic performance has always been difficult, especially when the economy approaches a turning point. Historic records have shown that the predictions are usually lower than actual results during economic expansion while higher during recession.

In addition, the analysts and institutions did not generally predict the economy improving in the second quarter, especially in June.

Noticeably however, some institutions, such as the Research Center for Econometric Analysis and Prediction at the Dongbei University of Finance and Economics, pointed out that the economy was likely to bounce back in the second quarter.

Growth driven by services

Another reason that analysts predicted low economic growth in the second quarter was the unsatisfactory performance of industrial enterprises, above designated size, those with annual sales revenue above 5 million yuan ($805,000), in March and April.

However, the accelerating development of the service industry has facilitated overall GDP growth. The first half year witnessed an 8.4 percent increase in the service industry, with its added value making up of 49.5 percent of GDP.

The added value of the financial sector, part of the service industry, increased by 17.4 percent, thanks to the boom in capital markets in the first six months of this year.

Moreover, tourism continues to promote economic growth and expand domestic demand. For the first half year, the number of domestic tourists reached 2 billion, generating a revenue volume of 1.65 trillion yuan.

Growth promoted by robust demand

Some observers believed that the decrease in retail sales, fixed-asset investment and the growth rate for exports suggested a slower pace in the expansion of social demand. However, such analysis is not comprehensive enough as we think the expansion of social demand has rendered strong support to the 7 percent growth.

From the perspective of consumer demand, retail sales slightly declined. However, the rise in retail prices slowed as well, so the overall increase in retail sales remained steady. Also, service consumption such as tourism and telecommunications, which takes up roughly 20 percent of total consumption, increased rapidly. During the first half of this year, the contribution rate of consumption to economic growth reached 60 percent, up 5.7 percent compared to the same period last year.

In terms of investment demand, the decline of fixed-asset investment growth in the second quarter has weakened its function of boosting the economy, but in some key areas, for example infrastructure, the growth was still remarkable enough to act as a driver.

Additionally, from the perspective of external demand, China’s export growth was indeed decreasing, but influenced by sluggish domestic demand, the decrease in the country’s imports was more striking. It means trade surplus expanded in the second quarter, further contributing to economic growth.

Growth benefits from structural adjustment

Some analysts challenged that the slower increase in key indicators, such as electricity consumption and the volume of goods transported, cannot sustain 7 percent growth.

Namely, in the first half of 2014, GDP rose by 7.4 percent, electricity consumption by 5.3 percent and the volume of goods transported 7.5 percent. In the first half of this year, the increase was 7 percent in GDP, 1.3 percent in electricity consumption and 4.2 percent in goods transported.

However, the effect of structural changes on economic indicators should also be taken into account.

The electricity used for industrial production usually takes up over 70 percent of total consumption. However, in the first half of this year, this registered slower growth. In contrast, the service industry has become the main force in driving the economy. This change will lead to a slower increase in total consumed electricity.

On the other hand, some industries with high electricity consumption, such as chemical and coal, have decreased production, which is another reason that caused a slight decline in electricity consumption.

But some high value-added and low-energy industries have begun to increase electricity consumption dramatically in the first half of this year, guided by industrial restructuring policies.

The reason why the volume of the transported goods declined was that the coal, chemical and cement industries have reduced production substantially, but these factors have relatively minor influence on the growth speed of the economy.

Overall, the main economic indicators in the first half year have demonstrated some differences compared with the past, but the changes stemmed from continued efforts in economic restructuring by the government. It certainly does not mean economic indicators are out of harmony with growth figures.

(The author is Zhang Xiaoqiang, deputy director of the China Center for International Economic Exchanges)