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China's Economy Growth a Controlled Slowdown
May 21,2012 16:04CST
data analysis
In the last two weeks, the economic data released by the NBS have prompted some west media and analysts' speculation that China's economy has yet to bottom.

BEIJING, May 21 (Xinhua) -- In the last two weeks, the economic data released by the National Bureau of Statistics have prompted some west media and analysts' speculation that China's economy has yet to bottom.

However, they neglected some positive signals and the fact that the decelerated growth rate is the anticipated consequence of the government's active control as China is undergoing a structural shift from resources- and investment-driven growth to a more balanced and more sustainable pattern.

Decelerated Pace of Growth
The weak growth of three major drivers of China's traditional economic growth -- investment, exports and consumption -- were the main targets for those who were pessimistic towards China's future economy.

According to the National Bureau of Statistics, fixed asset investment in urban areas increased 20.2 percent year-on-year in the first four months, the slowest pace since the 17.4-percent growth recorded in 2002.

In year-on-year terms, FDI edged down 0.74 percent to 8.4 billion U.S. dollars in April, following a 6.1 percent drop in March, 0.9 percent in February and 0.3 percent in January.

The trade surplus continued to shrink, amounting to 21.9 billion U.S. dollars for the first four months of 2012, or less than 1 percent of GDP.

Meanwhile, manufacturing activities were also at their lowest levels in April since May 2009 as industrial production rose by 9.3 percent, while retail sales increased by 14.1 percent, the weakest in 14 months. And power output growth, a core measure of economic activity, slowed to less than 1 percent.

The lower-than-expected 8.1-percent GDP data sent some shock waves to analysts at home and abroad.

These downward figures dampened some investors' confidence. Bank of America Merrill Lynch cut China's full year gross domestic product growth forecasts from 8.6 percent to 8.0 percent.

But analysts hold different point of view.

"I don't think a month or two of bad economic data means the government has lost its ability to manage things," said Andrew Batson, an analyst with the Beijing-based Dragonomics consultancy.

With respect to the FDI drop, "there are various reasons (behind the drop in FDI)," said Ministry of Commerce spokesman Shen Danyang, at a news briefing on Tuesday.

"We are now entering a period where we choose the foreign investment," rather than absorb all types of foreign investment, Shen said.

Teng Tai, economist of China Minzu Securities, said the continuous FDI declines were normal as the country changed its foreign investment policy from the pursuit of "quantity" to "quality."

Positive Signals
Arriving with the downward figures, there were encouraging upward ones.

Both the Purchasing Managers Index (PMI) and consumer confidence index picked up momentum in the past few months, indicating the economy was on a path of steady growth.

The PMI, a preliminary readout of manufacturing activities, rose in April for the fifth consecutive month. And the consumer confidence in the first quarter was the strongest since 2005, according to a report by the international market research firm Nielson.

The per capita income of urban and rural residents rose significantly in the first quarter, reaching 9.8 percent and 12.7 percent, respectively, both outpacing GDP growth. If this trend continues, it is more likely to see a consumption-driven China with its 1.3 billion consumers taking shape now than any time in the past. Over the past three decades, per capita income rarely grew faster than the general economy.

"The government's firm support for small and medium-sized enterprises through expansion of credit, shifting policy to boost domestic consumption and demand, and continued enforcement of restrictions designed to deflate the real estate bubble are all contributing to consumer optimism," said Yan Xuan, president of Nielsen Greater China.

"The leading economic indicators we monitor have been stabilizing, indicating a further sharp growth fall is not likely," said Pan Jiancheng, deputy director of the China Economic Monitoring and Analysis Center, a research unit of the NBS.

"Forward looking indicators are starting to recover. At least we can say in the future, the Chinese economy will not have a sharp slowdown," Pan said.

Pan pointed to an uptick on a monthly basis in leading indicators such as the new orders and input purchasing sub-indexes in the NBS' Purchasing Manager Index, as against a slide in manufacturing output, which measures past economic performance.

He noted that a business confidence index rose in the first quarter compared with the fourth quarter.

Dropping producer prices were evidence of overcapacity in the Chinese manufacturing sector, which prevented factories from passing on higher labor and raw materials costs, Pan said. PPI fell 0.7 percent year on year in April.

Though GDP growth slowed to 8.1 percent in the first quarter, the fifth decline in a row, economists said the situation is not likely to worsen in the following quarters.

"The year-on-year GDP growth of 8.1 percent in the first quarter has different meanings to different analysts," Pan said. "On one hand, it slows down in five consecutive quarters and the figure seemed to grow in the first quarter. However, such a growth rate is still normal. Our economy growth didn't not turn into a depressed situation, nor did the early warning system send a warning."

"We should be accustomed to the growth slowdown after it has kept a high rate for a long time, and not focus on growth rate solely," Pan suggested.

In fact, amid the global recession, this 8.1 percent growth rate remains a "high score," outgrowing the 7.5 percent goal of the whole year set by the government. And the periodical change does not mean the economy has shown some adverse effect physically.

"China is experiencing a policy-led economic slowdown in growth which was implemented by the authorities in response to the inflation pressure that emerged last year, and it seems to me well within the parameters of normal policy management," said Andrew Colquhoun, head of sovereign ratings for Fitch Asia Pacific.

A Controlled Slowdown and Signs of Rebalancing
Although China's economy growth slowed down, it is the consequence of government active control and there began to show signs of balanced development.

China's rebalancing effort, shifting from reliance on net exports and capital formation to domestic consumer demand, is proceeding.

The problems of slowing growth in China should not be overemphasized as the country is undergoing a structural shift from resources-and investment-driven growth to a more balanced and more sustainable pattern, analysts said.

Potentially, China can still stimulate its economic growth much faster than 8.1 percent with enough firepower within its policy ammunition, they added.

China has the confidence, conditions and capabilities to achieve this year's development goals, Premier Wen Jiabao said Sunday at a trilateral business summit between China, Japan and the Republic of Korea.

Wen noted that the Chinese economy is currently enjoying sound development momentum, and people's living standards and market confidence are continuing to improve.

China will accelerate the transition of the country's development mode, adjust the economic structure, strive to expand domestic demand, promote energy conservation and emissions reduction, develop the green economy and realize sustainable development, the premier said.

Wang Xiaoguang, a researcher from the Chinese Academy of Governance, an advisory body to the central government, said though the economic growth is declining, it offers a great opportunity for the country to adjust its economic growth pattern to ensure more sustainable development in the future.

The slowdown in housing construction, in response to the government's efforts to control the real estate bubble in major cities, appears to have bottomed out as property prices stopped falling during the first quarter of 2012 and even showed a small uptick in several big cities after about nine months of decline. Construction of government-sponsored "affordable housing," meanwhile, has picked up in some areas.

Many low-tech, low-margin manufacturing enterprises are closing or relocating to lower-cost areas. Over time, these structural changes will promote higher household consumption growth.

An apparent acceleration in financial sector reform will further promote structural economic change in the right direction.

In the medium term, growth may come down further. But it is clear that a structural transformation of China's economy is already well under way thanks to slower export growth and rising domestic production costs.

China's economy; a controlled slowdown

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