Re-examining China’s Economic Growth Momentum
By HU JIANGYUN
According to the National Bureau of Statistics, China’s economic growth rates in the first and second quarters of 2014 were 7.4 percent and 7.5 percent respectively, lower than those of last year’s third and fourth quarters, which were 7.8 percent and 7.7 percent. Observers have started to question this economic trend: Is China headed for a recession?
Judging by the growth rate, China’s economy does seem to be slowing down. But in fact, there is significant sustaining potential and momentum behind the country’s economic growth, and factors like structural adjustment and healthy market competition support a stable growth model.
The first positive sign is the effect of China’s structural adjustment. Since the outbreak of the global financial crisis, China has adjusted its economic structure to support growth. Particularly broad strides have been made in the tertiary industry structure, where further optimization means that the added value of this sector has gradually increased its proportion of GDP, even exceeding that of secondary industry. During the first half of 2014, the tertiary industry’s added value accounted for 46.6 percent of GDP, a year-on-year growth of 1.3 percent, and 0.6 percent higher than that of the secondary industry. The burgeoning service sector’s growth rate has surpassed that of primary and secondary industries. From January to June this year, the tertiary industry registered a growth of eight percent.
Inside China’s tertiary sector, productive service industries, such as e-commerce, develop rapidly, much quicker than traditional ones. Based on a report from the China E-business Research Center, from 2010 to 2013 the yearly turnover of China’s e-commerce market was RMB 4.5 trillion, 6 trillion, 7.85 trillion and 10.2 trillion respectively, representing year-on-year growth rates of 22 percent, 33 percent, 30.8 percent and 29.9 percent. As of December 2013, 2.35 million people were employed in e-commerce service enterprises, and the industry also indirectly created 16.8 million jobs. China’s small and medium-sized enterprises that use third-party e-commerce platforms number 19 million.
By readjusting its industrial structure, China has eliminated excess production capacity and outdated techniques and equipment, creating huge development space for energy conservation and environmental protection industries. From 2009 to 2012, the annual total output value of China’s energy conservation and environmental protection industries was RMB 0.98 trillion, 1.16 trillion, 1.38 trillion and 1.65 trillion respectively, a year-on-year growth of 16.1 percent, 17.8 percent, 19.1 percent and 19.4 percent. Furthermore, the employment figure has reached 25 million. The following graph shows the production value and growth of China’s energy-saving industry and environmental protection industry from 2008 to 2012.
The second support factor for economic growth is China’s healthy market competition, which has encouraged rapid expansion of private economy. In November 2013, the Third Plenary Session of the 18th CPC Central Committee explicitly elected to let the market mechanism play a decisive role. In this regard China has strengthened its financial budget and controlled public consumption. It has also transformed the government’s functions, substantially reduced administrative examination and approval, facilitated operation of market entities, and protected fair competition in the market. As a result, public investment and consumption has declined, while private investment and consumption has increased and substantially enhanced economic efficiency. In 2013, the nominal growth of private fixed asset investments was 23.1 percent, higher than that of national fixed asset investment, which was 19.6 percent. During the first half of this year, the nominal growth of private fixed asset investments was 20.1 percent, higher than that of national fixed asset investment, which was 17.3 percent. From January to June, the retail sales of consumer goods totaled RMB 12.4199 trillion, a year-on-year nominal growth of 12.1 percent. Online retail sales accounted for RMB 1.1375 trillion of that, a year-on-year increase of 48.3 percent. In addition, fierce competition also exists among different regions, helping to maintain stable economic development and full employment at a local level too.
Thirdly, China is a huge market and its huge potential in domestic demand is becoming manifest. With a population of over 1.3 billion, China has become a middle-income country. Preliminary estimates suggest that hundreds of millions of Chinese people earn within the middle-income range. Moreover, China’s huge domestic market – and its demand – is its strongest safety net, cushioning the impact of the global financial crisis. In recent years, along with the increase in income per capita, Chinese people’s lifestyle has changed gradually, from a save-more-consume-less attitude to an “enjoy life” mantra; the fever of domestic tourism and investment, as well as private overseas investment and cross-border consumption bolster China’s economic growth.
Finally, it is recognized that global economic recovery and China’s development influence each other. On one hand, sustainable economic development in China will provide impetus for world economic recovery and growth; on the other, in the context of economic globalization, China has had to form an inseparable bond with the world, thus, sharing weal and woe. From this year, the gradual economic recovery of the eurozone, further improvement of the U.S. economy, and stable economic development of emerging economies will continue to be conducive to enhanced international trade and cross-border investment, in favor of China’s economic growth.
On the whole, there are a number of favorable factors supporting stable economic growth in China. Of course, there are also risk factors in economic operation demanding our attention, including those in the virtual economy such as China’s real estate finance sector. Effectively guarding against them requires governmental macroeconomic regulation and control.
HU JIANGYUN is a researcher at the Development Research Center of the State Council.
