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China’s economic growth is picking up in a stable way， with GDP increasing 7.8 percent in the third quarter， higher than the 7.5 percent in the second， according to data from the National Bureau of Statistics（NBS） on October 18. However， compared with a strong rebound in July and August， the economic upswing in September is not sustainable. Therefore， emphasis should be laid on stimulating and stabilizing economic growth while carrying out restructuring.
The rebound
In the first half year， China’s economy witnessed a slight slowdown， with GDP growth dropping from 7.7 percent in the first quarter to 7.5 percent in the second. The Central Government’s minimum target for growth is 7.5 percent， and panic was rife at home when China’s growth met the lower limit. Many international economic think tanks and institutions believed China would suffer a hard landing.
The Chinese Government says it would do all it can to keep at or above 7.5 percent by reducing bureaucracy， expanding more pilot programs to replace business with a value-added tax， promoting interest rate liberalization and carrying out reforms on infrastructure investment and the price of resources.
These policies have quickly shown results. Since July， the prices of raw materials like petroleum， steel and non-ferrous metals saw an upward trend. In September， the purchase management index （PMI） was 51.1 percent， rising for three consecutive months， while electricity generation and transportation have also rallied.
According to statistics from the NBS， fixed-asset investment shot up by 20.4 percent in the third quarter， following the State Council’s unveiling of favorable measures regarding the expansion of high-speed railways and subways， energy conservation， emission reduction and a Broadband-China strategy.
From January to September， the total retail sales of consumer goods increased by 12.9 percent， edging up slightly from the same period last year. Due to the Central Government’s ban on extravagant and costly banquets on the public dime， revenue in China’s catering sector rose a mere 8.9 percent from January to September， down by 4.3 percentage points year on year.However， furniture， building and home decorative materials sales kept expanding rapidly and show signs of a rebound.
Growth in the service industry remained flat due to the Central Government’s efforts to reign in three major public expenses： vehicles， receptions and overseas trips. Fluctuations
Despite a stable recovery of China’s macro-economy beginning in July， there has been a lack of growth momentum overall. Though the PMI hit a record high in September， it only rose slightly month to month and failed to meet expectations.
The State Information Center， a govern- ment think tank， has given three explanations. First， the slow growth of incomes. Incomes for urban and rural residents grew at a pace slower than that of the GDP. In addition， structural unemployment kept deteriorating. Second， the tight financing of infrastructure construction. Given the poor assessment of government debt by the National Audit Office， local government financing platforms are being squeezed. Furthermore， rising financing costs resulted in dwindling credit demand， while falling profits led to a fund shortage and a declining ability to repay debt， which has and will restrain investment in major projects. Third， the rapid appreciation of the yuan undermined export competitiveness. From January to September， the real effective exchange rate rose 6.29 percent. As the dollar gains strength， the yuan is likely to appreciate in the days to come. Considering the weak demand from overseas markets and the dramatic depreciation of other currencies， the real effective exchange rate of the yuan will exert a significant influence on export growth.
Niu Li， a senior economist with the State Information Center， said overcapacity also cramped the development of the manufacturing industry and momentum for a strong economic rebound. Mounting idle production capacity has become a stumbling block for economic growth and the ability for enterprises to upgrade their development model toward more efficient and higher end goods.
“Now， investment in industries that are already harassed by overcapacity is still on the rise，” said Niu. “It’s becoming increasingly difficult to tackle the problem.”
Moreover， the rise of the consumer price index （CPI） has likely had an impact on economic development. In September， the CPI rose by 3.1 percent. The central bank may tighten its currency policy to avoid inflation， while a subsequent liquidity shortage may affect the production and operation of some enterprises. Though the exit of quantitative easing policies by the United States was postponed， it will take place sooner or later. Therefore， China’s economy is under threat by an appreciating U.S. dollar， gloomy financial markets and rising borrowing costs.
The rebound
In the first half year， China’s economy witnessed a slight slowdown， with GDP growth dropping from 7.7 percent in the first quarter to 7.5 percent in the second. The Central Government’s minimum target for growth is 7.5 percent， and panic was rife at home when China’s growth met the lower limit. Many international economic think tanks and institutions believed China would suffer a hard landing.
The Chinese Government says it would do all it can to keep at or above 7.5 percent by reducing bureaucracy， expanding more pilot programs to replace business with a value-added tax， promoting interest rate liberalization and carrying out reforms on infrastructure investment and the price of resources.
These policies have quickly shown results. Since July， the prices of raw materials like petroleum， steel and non-ferrous metals saw an upward trend. In September， the purchase management index （PMI） was 51.1 percent， rising for three consecutive months， while electricity generation and transportation have also rallied.
According to statistics from the NBS， fixed-asset investment shot up by 20.4 percent in the third quarter， following the State Council’s unveiling of favorable measures regarding the expansion of high-speed railways and subways， energy conservation， emission reduction and a Broadband-China strategy.
From January to September， the total retail sales of consumer goods increased by 12.9 percent， edging up slightly from the same period last year. Due to the Central Government’s ban on extravagant and costly banquets on the public dime， revenue in China’s catering sector rose a mere 8.9 percent from January to September， down by 4.3 percentage points year on year.However， furniture， building and home decorative materials sales kept expanding rapidly and show signs of a rebound.
Growth in the service industry remained flat due to the Central Government’s efforts to reign in three major public expenses： vehicles， receptions and overseas trips. Fluctuations
Despite a stable recovery of China’s macro-economy beginning in July， there has been a lack of growth momentum overall. Though the PMI hit a record high in September， it only rose slightly month to month and failed to meet expectations.
The State Information Center， a govern- ment think tank， has given three explanations. First， the slow growth of incomes. Incomes for urban and rural residents grew at a pace slower than that of the GDP. In addition， structural unemployment kept deteriorating. Second， the tight financing of infrastructure construction. Given the poor assessment of government debt by the National Audit Office， local government financing platforms are being squeezed. Furthermore， rising financing costs resulted in dwindling credit demand， while falling profits led to a fund shortage and a declining ability to repay debt， which has and will restrain investment in major projects. Third， the rapid appreciation of the yuan undermined export competitiveness. From January to September， the real effective exchange rate rose 6.29 percent. As the dollar gains strength， the yuan is likely to appreciate in the days to come. Considering the weak demand from overseas markets and the dramatic depreciation of other currencies， the real effective exchange rate of the yuan will exert a significant influence on export growth.
Niu Li， a senior economist with the State Information Center， said overcapacity also cramped the development of the manufacturing industry and momentum for a strong economic rebound. Mounting idle production capacity has become a stumbling block for economic growth and the ability for enterprises to upgrade their development model toward more efficient and higher end goods.
“Now， investment in industries that are already harassed by overcapacity is still on the rise，” said Niu. “It’s becoming increasingly difficult to tackle the problem.”
Moreover， the rise of the consumer price index （CPI） has likely had an impact on economic development. In September， the CPI rose by 3.1 percent. The central bank may tighten its currency policy to avoid inflation， while a subsequent liquidity shortage may affect the production and operation of some enterprises. Though the exit of quantitative easing policies by the United States was postponed， it will take place sooner or later. Therefore， China’s economy is under threat by an appreciating U.S. dollar， gloomy financial markets and rising borrowing costs.