Signs of Steady Growth

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Government’s measures to boost growth is showing effects

GDP in the first half of the year rose by 7.8%, slightly above an official 2012 growth target of 7.5 percent.

“This figure is within our expectation. From the firsthalf-year data, we can also see signs of steady economic growth,” Zhang Liqun, a macro-economic researcher from the Development Research Center of the State Council(DRC), told reporters.

Zhang said, despite the fact that China’s Q2 GDP fell to 7.6%, the decrease rate has slowed from the earlier 0.8% to 0.5%.

In terms of investment, consumption, and export, which are figuratively described as the “three driving forces” of economic growth, in the first half of the year, investment and consumption stopped to decline and saw a slight recovery; Q2 export also grew faster than Q1. It indicates that the government’s measures to spur the economic growth are showing effects.

Financial data show signs of recovery

The latest financial data showed, though the financial revenue in June reduced by 3 percentage points compared to May, some major revenue indicators that reflect the economic situation are somehow going upward.

In June, the domestic value-added tax and corporate income tax respectively increased by 12.7% and 10.1%, 3 percentage points and 1 percentage point higher than the actual growth rate in May. The sales tax growth also rose by 21.1%, a significant increase of 15 percentage points from the May figure. Statistics from the central bank showed that new RMB loans also saw a sharp rebound from May, adding up to 919.8 billion yuan in June.

All these facts indicate that China’s economy is driven by increasingly stronger positive forces. As the central policies continue to perform well and show effects, China’s economy is likely to recover in the second half of the year.

Full-year GDP growth expected at 7.5%-8%

“Figures showed that China’s economy is seeing signs of stabilizing and it will grow steadily in the second half of the year,” the NBS spokesman Sheng Laiyun said at a press conference.

Zhang Liqun also believed that the full-year economic growth will be in an L-shape, with an expected GDP growth rate of 7.5% to 8%.

Great chance for an economic recovery in Q3

Lian Ping, chief economist from the Bank of Communications, said China’s economy reached the bottom in the second quarter, but as the central fiscal and monetary policies are taking effect and the external environment is improving, there is a great chance for China’s economy to bottom out and recover in the third quarter of the year.

With the government policies to “stabilizing growth and curbing inflation”, the rapid drop of prices in June will bring about a further loosening of monetary policies in the second half of the year and fuel the steady growth of China’s economy.

In this regard, Zhang said that the government should moderately adjust the demand policy and continue to exercise prudent monetary policies. In terms of fiscal policies, there should be a structural tax cut to reduce the burden of corporate taxes. Attention should also be paid to ensure the livelihood of the people.

The People’s Bank of China, the central bank, has rolled out two interest rate cuts within 30 days, a clear signal for the relaxation of monetary policies. However, Lian Ping said, it is not necessary or possible for China to adopt much easier monetary policies. Though the central bank may again lower the interest rate slightly during the year, repeated and sharp interest rate cut is unlikely.

Lian also pointed out that in order to maintain liquidity as the economy stabilizes, the central bank may still lowered the deposit reserve ration 1 to 3 times during the year.

(Authors: from Shanghai Securities News)