China’s economic growth gathered speed in the third quarter, but it’s not necessarily a great achievement to brag about.
The growth rate of 7.8 percent was achieved mainly because of the mini-stimulus measures launched by the government since the GDP growth hit what top policymakers deemed as the bottom line of 7.5 percent in the second quarter.
Looking at newly released economic figures, it is easy to find out that investment, the property market and robust lending were the major booster for the recovery. This round of economic rebound was achieved at the cost of a delay in economic restructuring.
After GDP expansion hit a multi-year low of 7.5 percent in the second quarter, authorities kicked off some pro-growth measures, including accelerating infrastructure investment, increasing the spending on public housing and supporting first-time homebuyers.
Fixed-asset investment, hence, grew quicker. In the third quarter, it jumped 20.3 percent, compared with 19.7 percent in the second.
The property market was another economic engine. Land deals were up 52.9 percent in terms of area and 102.5 percent in terms of value. First-tier cities such as Beijing, Shanghai and Guangzhou have released their plans of land supplies, which showed that they will continue to put more land lots for sale.
Property prices rose 20 percent in first-tier cities in the third quarter, nearly double the growth rate in the preceding three months.
The authorities’ reluctance to roll out more tightening measures and their decision to increase the loan quotas for commercial banks helped boost the property market. The market was so hot that banks were running out of loans for property buyers by the end of September, prompting the central bank to reassure that authorities would not intentionally curb loans for homebuyers.
This showed that Chinese policymakers still count the property market as a silver bullet to deal with slowdown. Given that an overly booming property market distorts resource distribution, gives rise to asset bubbles and adds to speculative activities, such thinking does not help in restructuring the economy.
Credit expansion in the third quarter was remarkable. New yuan loans amounted to 2.2 trillion yuan (US$360 billion), an increase of 17.73 percent year-on-year. The growth rate beat the first quarter’s 11.84 percent and the second quarter’s negative 3.09 percent.
Top policymakers apparently loosened the monetary stance in the third quarter. Mostly likely, they had realized that the unusually harsh stance taken in the second quarter – when they declined to inject capital to the banking market although lenders suffered from a credit crunch – was a bit overdone.
But they ran to the other side of extremity. Credit expanded too quickly in the third quarter, pushing the consumer price index to a seven-month high of 3.1 percent.
Monetary loosening and fiscal expansion remain the major tools China uses to propel economic growth. But these tools can easily lead to high inflation and lofty leverage rate. To curb inflation and reduce loan level, the country will have to resort to tightening policies. That’s why China often jumps between policy tightening and loosening, with economic slowdown and high inflation alternately appearing.
What can really cure this pain lies in social consumption. But this sector did not improve a lot in the third quarter.
In the first three quarters, consumption’s contribution to the overall economic growth stood at 3.5 percentage points, much lower than 4.3 percentage points in the first quarter. Meanwhile, investment accounted for 4.3 percentage points in the first three quarters, up remarkably from 2.3 in the first quarter.
Clearly, domestic consumption gave its seat to investment since the government launched pro-growth measures in the third quarter. This means the economic restructuring was not heading toward the direction as top policymakers wished.
Of course, it is too premature to say the economic structure is getting worse. After all, transforming the Chinese economy from the one led by exports and investment to one driven mostly by consumption remains a long-term task.
What we hope is that authorities are resorting to temporary pro-growth measures to quickly boost the economic growth to a level that ensures enough employment and paves way for more reforms in sectors such as social welfare and finance.
Zhang Xinmo, a commentator based in Beijing, has been a journalist for more than 10 years in China and Hong Kong. He writes mostly on China’s economic issues.
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