China’s economic fundamentals point towards high-quality development

Although China’s growth data for the first half of the year is yet to be released, a glimpse into the positive changes in economic fundamentals showed China is moving steadily towards its goal of high-quality development.

With overall economic activity maintaining stable expansion and industrial and service production picking up pace, China’s sound economic fundamentals once again dismissed some persistent doubts over the health of the world’s second largest economy.

Official data showed the country’s manufacturing purchasing managers’ index (PMI) came in at 51.5 in June, above the boom-bust line of 50.

While the reading was lower than 51.9 in May, it surpassed an average of 51.3 for the first half of this year, indicating upward momentum, according to the National Bureau of Statistics (NBS).

In the first five months, profits at China’s major industrial firms grew 16.5 percent, quickening from the 15-percent expansion for the January-April period.

Other economic indicators, including energy consumption, freight traffic, and producer prices all ticked up in May, pointing to a stable real economy and progress in structural transformation.

Along with economic resilience, the job market also remained stable, giving policymakers more room to push reforms. In May, China’s surveyed unemployment in urban areas declined to 4.8 percent, down 0.1 percentage point from April and 0.1 percentage point lower than last May.

“Generally speaking, China’s economic operation has maintained its trend of steady and improving development,” said NBS spokesperson Mao Shengyong.

According to a forecast by financial institutions and economists, China’s economy is predicted to expand 6.7 percent in the first half of 2018, slightly retreating from the 6.8-percent growth seen in Q1 but still well above the government target of 6.5 percent for the whole year.

In regards to the second half of the year, chief economist of CITIC Securities Chu Jianfang believes there will be no big risk of recession and the economy will remain resilient, citing rising industrial investment, steady infrastructure investment and warming external demand.

The better-than-expected performance is largely attributable to China’s supply-side structural reforms, which helped increase utilization efficiency of industrial capacity and enhance supply quality of products and services.

“The advancing of supply-side structural reforms are showing spill-over effects, and better quality of the supply system will push stable growth of the economy,” said Ning Jizhe, deputy head of the National Development and Reform Commission.

Meanwhile, the country’s deleveraging efforts are happening in a stable and orderly manner. The credit profile of China reflects a number of strengths, including the vast size and growth rate of its economy, denoting very high shock absorption capacity, according to a report from global rating firm Moody’s.

Last month, the World Bank upgraded its forecast for China’s economic growth in 2018 to 6.5 percent, 0.1 percentage point higher than its January forecast.

The World Bank’s latest China Economic Update said that economic activity had remained resilient, and the new economy was now a more prominent source of growth.

Morgan Stanley also raised its forecast on the pace of China’s economic expansion for this year and 2019 in a research note, saying growth had become more sustainable and less reliant on credit.

The New York-based investment bank expects China’s GDP to rise 6.6 percent year on year in 2018, up from its previous projection of 6.5 percent. Its forecast for 2019 improved from 6.3 percent to 6.4 percent.


Leave a Reply