Positive signs in the Chinese economy
- By Guan Qingyou
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E-mail China.org.cn, April 13, 2014
2. Plummeting investment is a trend
In the long term, the investment rate (the proportion of GDP taken up by investment) in China cannot continue to sit at 48 percent. The great divergence between the investment rate and PPI is bound to end.
The drastic climb in the investment rate from 2008 to 2011 was a result of the government relocation of resources, which did not have a microeconomic foundation. Rising labor costs, the marketization of interest rates, restriction on local debts, among other issues such as environmental concerns, will undoubtedly bring down the investment rate. In case of a massive credit risk, the rate may even plummet.
A slowing investment rate mirrors a slowdown in economic growth. It is part of the economic transformation to seek optimized operation.
3. Removing exaggeration in consumption and exports figures
Consumption is among the most hit in anti-corruption campaign. Reduced collective consumption and consumer spending of public funds are a healthy trend beneficial to quality growth and efficiency.
During the first two months of this year, the total retail sales of social consumer goods in China went up by 11.8 percent compared to the same period last year, but the growth rate was down by 1.8 percentage points compared to December 2013.
Apart from anti-corruption, the rising anti-prostitution campaign, along with bearish housing sales, both further drag the growth of spending. But this is a slowdown that is good news for all.
False trade was effectively under control. We do not think our export demand will be as bad as the February data showed, though it will neither be as good as the January data promised. In the wake of the extreme winter weather in the United States, exports may climb. But given that the yuan's actual effective exchange rate against the dollar has appreciated too fast, the rebound in exports may not really be noticeable.
4. Tertiary industry growth will boost employment
China's industrial growth rate from January to February fell to 8.6 percent, the lowest since May 2009. Even if it recovers to 9 percent in March, it is difficult to achieve a 9 percent growth rate for the first quarter.
The industrial growth rate has long been recognized by market researchers as a gauge for economic growth. But the removal of excess capacity and economic structural upgrades have shown that tertiary industries are increasingly important to overall growth, which means that China should pay attention to this burgeoning sector.
An expanding service sector is giving a noticeable boost to employment. The reforms in all specific sectors are all meant to boost employment. When employment is on the rise, temporary downward pressure in the economy is nothing to worry about.
Calculations from the Development Research Center of the State Council show that around the year 2000, 800,000 new jobs were created for every percent of GDP growth; this has risen to 1.4-1.6 million now, suggesting that when the growth rate is slowing down to below 8 percent or around 7 percent, putting 10 million people in new jobs would not be much of a problem.
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