23 February 2019
Exports are expected to grow at a range of 5 to 10 percent in the second half of the year, from a 1.2 percent decrease in the first six months. Photo: Bloomberg
Exports are expected to grow at a range of 5 to 10 percent in the second half of the year, from a 1.2 percent decrease in the first six months. Photo: Bloomberg

Stimulus losing impact on China growth

China’s economic growth markedly slowed down in the past months since it recovered from a multiyear low by the end of the first quarter.

This shows that the loosened monetary policy’s stimulus effect on the economy is not as visible as it was. Last year, the policy loosening since the second quarter helped boost economic growth for the rest of the year. But this year, the loosening adopted since the first quarter only lasted for about three months.

As the Chinese economy is undertaking profound but painstaking structural transformation and the global economy is slowly recovering, slower growth will become normal for China.

In this sense, the top leadership should not be bothered too much by how fast the economy will grow but should focus more on reforms and restructuring.

So long as the labor market remains stable and the economic structure continues to improve, China should be able to sustain an even slower growth.

It is strongly suggested that the Chinese government set its growth target for next year at 7 percent so that it can have more leeway in adjusting its policies.

Looking ahead, the world’s second-largest economy has at least three challenges to overcome before it can achieve the yearly goal of 7.5 percent growth.

First is the tepid property market.

Since July, many cities have scrapped their restrictions on home purchases. To date, first-tier cities such as Beijing, Shanghai and Guangzhou as well as dozens of other major cities have allowed residents to buy more than one home and some even loosened restrictions for residents from other places to buy houses.

The moves were apparently intended to shore up the property market and spur the economy. However, the policy change only achieved limited effect.

The sluggishness in the market comes amid a high inventory. The ratio of inventory to sales now stands at 5.1, compared with 2.3 in 2010. It may take a while to clear this inventory.

Moreover, credit is rather tight, with property loan interest rate rising from 6.7 percent in the first quarter to 6.93 percent in the second quarter, which was nearly a three-year high.

With high inventory and tight credit, the property market is not very likely to rebound robustly even if cities loosen their home purchase policies.

The second major challenge China faces is a possible slowdown in the growth of infrastructure investment.

In the first half of the year, infrastructure investment, which accounted for 22.8 percent of fixed-asset investment, grew fast to offset the sluggish property investment. Infrastructure spending turned out to be a savior of the economy. But this trend may not be able to persist in the second half of the year.

Infrastructure investment is highly linked to the growth in government budget funds, which slowed to 15.5 percent by the end of June from 19.7 percent a month ago. The slowdown persisted and stood at 14.1 percent by the end of July. 

These figures show that infrastructure investment lacks solid capital support from the government budget.

This means that investment, the savior of the economy, cannot help as much as it did in the first half.

Export is widely expected to replace infrastructure investment as an economic booster. Although exports have recovered rapidly since May, the recovery is far from solid. Sustaining the pace of export growth is the third challenge to China.

Chinese exports jumped 14.5 percent in July, but the increase was mainly due to a combination of factors such as foreign exchange rate fluctuations and statistical restoration from fake trade.

Real exports didn’t grow as much as many had expected. In addition, the declining purchasing managers’ index in Europe and falling Chinese export container index show how tough it is for China to stabilize its exports.

Exports are expected to grow at a range of 5 to 10 percent in the second half of the year. This will definitely be an improvement from the 1.2 percent decrease in the first six months. But at the same time, imports are expected to grow, too. So the net exports’ contribution to the GDP growth won’t be very big.

The author is an economic commentator.

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The writer is an economic commentator. He writes mostly on business issues in Greater China.

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