BEIJING — China bears should now take a break. New indicators have proved once again that pessimism over the Chinese economy is overplayed and misplaced.
Data released on April 15 showed China’s economy rose 6.7 percent in the first quarter, the weakest since the dark days of the financial crisis in early 2009, but several key indicators pointed to signs of stabilizing.
Year-on-year, consumption expanded 10.3 percent during the same period, fixed-asset investment was up 10.7 percent, while industrial production rose 5.8 percent, with the growth rates all accelerating from the January-February period.
Contrary to claims that weak demand in China has dragged down the world’s commodity markets and weighed on exporters, customs data showed China’s imports, such as crude oil, iron ore and copper, actually increased strongly in the first quarter.
These are not the numbers of an economy that is about to collapse.
However, they may do little to quell naysayers, who think they have plenty to support their notions: slowing growth, debt build-up, overcapacity and capital outflows.
Due to the concerns, two of the world’s three leading rating agencies, Moody’s and Standard & Poor’s, have raised a red flag over the economy.
Yet the pessimism is overdone.
China’s economy is sufficiently resilient. China is not likely to see the kind of debt crisis that the EU has been dealing with, as its unified treasury system makes bailout plans easier to implement.
China’s ability to endure risk is also strengthened by its moderate deficit level (2.4 percent in 2015 and a target of 3 percent for 2016), large household savings and massive foreign exchange reserves.
Even if the worst happens, China has ample policy tools to cushion a downturn. After the latest cut in interest rates in October, the benchmark one-year lending rate still stands at 4.35 percent, leaving the central bank more room to maneuver.
Also lost amid the talk of a collapse is the fact that China is making progress in an ambitious transformation — away from its old growth model of credit-fueled, investment-led and export-powered growth and toward sustainable expansion driven by consumer spending and entrepreneurship, a shift that will bring slower growth. The progress matters hugely for the future of China and the rest of the world.
Consumption has made a bigger contribution than investment to China’s growth, accounting for more than 60 percent of GDP in the first quarter. Services continued to trump industry’s contribution, expanding 7.6 percent in the last three months and accounting for 56.9 percent of GDP. Hi-tech industry expanded much faster than the industrial sector as a whole, and energy consumption per unit of GDP continued to fall.
Supply-side structural reform is also advancing as the country moves to address issues like industrial overcapacity, a large inventory of unsold homes and unprofitable “zombie companies”, a good choice not only for the country, but also for the world at large.
To be sure, China’s economy will not return to its mega-growth and may be on a bumpy journey, but it is on a solid footing and is heading in the right direction. The real test lies in China’s resolve to push reforms as the world economy remains sluggish.