All Systems Slow

A slight slowing in the growth rates of GDP and the consumer price index (CPI) in the third quarter has eased the minds of those who worried that the Chinese economy was overheating.

According to statistics released by the National Bureau of Statistics (NBS) on October 25, in the third quarter the growth of China's GDP stood at 11.5 percent, 0.4 percentage point lower than what it was in the second quarter. In September, the growth of CPI stood at 6.2 percent, a decline of 0.3 percentage point from the previous month. Moreover, in the first three quarters, investment and exports grew 25.7 percent and 27.1 percent respectively, a marginal drop of 0.2 percentage point and 0.5 percentage point from the first half of the year.

"The trend for economic development from rapid growth to overheating has been relieved," said Li Xiaochao, spokesman for the NBS.

Effective macro-control

Economists attribute the cooling economy to macro-control measures adopted by the Chinese Government earlier this year. These measures will continue to influence economic trends in the future.

According to Li, this year, the Central Government has adopted a series of timely policies targeting conflicts and problems existing in economic development, and the effect of these macro-control policies is now being felt.

In 2007, structural adjustment measures, mainly monetary policies, have been continuously implemented. From January to September, policies were released each month to raise the deposit reserve ratio or interest rates for savings deposits and bank loans. The deposit reserve ratio has been raised from 9 percent at the beginning of this year to the present 13 percent.

China has also adjusted the structure of imports and exports by changing the export rebate rates in order to curb its surging trade surplus. According to statistics released by the Ministry of Commerce, in the first three quarters, the rapid growth in the export of resources goods and products featuring high energy consumption and high pollution was restrained. Exports of machinery and electrical products as well as hi-tech products still maintained high growth rates, and imports of material products increased.

Song Guoqing, professor at the China Center for Economic Research of Peking University, thinks that because of the high-level money supply, the macro-control measures will be further tightened, which will help maintain the cooling trend of the national economy through the fourth quarter and even next year. In his opinion, the GDP growth may slow to around 11 percent in the fourth quarter.

Consumption drives growth

According to preliminary estimates, in the first three quarters, consumption contributed 37 percent to the overall economic growth, while investment contributed 41.6 percent and foreign trade 21.4 percent.

From January to September, retail sales of consumer goods totaled 6.38 trillion yuan, up 15.9 percent year-on-year, 2.4 percentage points higher than the rate in the same period last year. However, growth of investment and foreign trade declined. In the first three quarters, fixed asset investment increased 25.7 percent over a year ago, 1.6 percentage points lower than the same period last year. The total volume of imports and exports rose 23.5 percent year-on-year, a decline of 0.8 percentage point compared with the same period last year.

"The fast growth of consumption this year mainly comes from the rapid growth in the income of both urban and rural residents, a continuous increase of employment, improving social security, upgraded consumption structure and the formation of new consumption attractions," said Li.

NBS statistics indicated that in the first three quarters, the per-capita disposable income of urban residents was 10,346 yuan, a real growth of 13.2 percent year on year while allowing for price hikes, 3.2 percentage points higher than the same period last year in terms of the growth rate. The per-capita cash income of rural residents was 3,321 yuan, a year-on-year increase of 14.8 percent in real terms, an increase of 3.4 percentage points compared with the growth rate in the same period last year.

Improved social security has reduced future expenditure pressures on residents and helps to stimulate consumption.

- Li Xiaochao

Moreover, by the end of September, the number of newly employed people in urban areas had reached 9.2 million, accomplishing 102 percent of the target of 9 million set for the whole year. The increase of employment is conducive to expanding consumption. According to Li, improved social security has reduced future expenditure pressures on residents and helps to stimulate consumption.

In the first three quarters, 308.9 billion yuan was budgeted for social security and employment, surging 29.5 percent over last year. By the end of September, the urban and rural population subject to minimum life security had increased and the number of participants to various social insurances also increased.

Upgrading of consumption structure and the formation of new consumption attractions also helped promote growth of consumption. From January to September, retail sales of consumer goods in urban areas kept rapid growth. Sales of automobiles, furniture and interior decoration materials increased 38.1 percent, 38.7 percent and 40.3 percent respectively.

"We can expect that consumption will remain robust as a series of measures are implemented to improve people's livelihood," said Li. "The income distribution structure is being continuously adjusted, and income of residents, especially that of low-income groups, is continuously increasing. Together with the improvement of various social security systems and the continuous upgrading of consumption attractions, it is expected that overall consumption will maintain rapid growth, and the consumption of residents, in particular, will keep a fairly high increase rate and become an important factor driving economic growth."

High entrepreneur confidence

According to data from a survey of over 19,500 enterprises of various types, released by the NBS on October 10, the entrepreneur confidence index (ECI) reached 143 points in the third quarter, equalling that in the second quarter and surpassing that in the same period last year.

The survey showed that 50.1 percent of entrepreneurs were optimistic about overall operations, while 42.7 percent saw little change in their outlook.

The ECIs of many industries remained steady in the third quarter. ECIs for the mining industry, electricity, gas and water production and supply industries, wholesale and retail sectors, information transmission, computer service and software industries, and lodging and catering industries respectively reached 162, 144.2, 145.2, 158.4 and 136, generally maintaining the level of the second quarter. The ECIs for the construction industry, the transport, storage and postal service industry, the real estate industry and the social service industry were 142.1, 142.2, 146.6 and 141, respectively, representing a rise of 1.7, 3.7, 1.1 and 4.2 points.

The ECI for manufacturing stood at 140.5, slightly lower than the previous quarter. Compared with the same period of last year, ECIs for other industries all showed increases by different degrees.

The ECIs of collectively owned enterprises, shareholding cooperative enterprises, private enterprises, and enterprises funded by overseas investors and investors from Hong Kong, Macao and Taiwan were respectively 118.2, 125.3, 137.3 and 147.1, rising by 1.1, 2.9, 2.7 and 1.1 points. The ECI of limited liability enterprises held steady at 141.5. The figures for state-owned enterprises and limited shareholding corporations were 142.2 and 152.9 respectively, slightly lower than the figures in the previous quarter.

The survey also showed that the ECIs of large, small and medium-sized enterprises held steady at 160.5, 133.5 and 124.5 respectively, generally equalling the level of the second quarter, and exceeding the level of the same period last year.

Fast trade growth

According to figures of the General Administration of Customs, in the first three quarters, the volume of imports and exports amounted to $1.57 trillion, up 23.5 percent over a year ago.

During the January-September period, China exported $878.24 billion worth of goods, a year-on-year increase of 27.1 percent, 0.6 percentage point higher than the same period last year. Since June, exports have surpassed $100 billion every month. In the first nine months, imports were valued at $692.59 billion, showing a year-on-year increase of 19.1 percent and a decline of 2.6 percentage points in terms of growth rate.

The mix of commodities exported by China continues to improve, with exports of machinery, electrical and hi-tech products growing rapidly. In the first three quarters, exports of machinery and electrical products were valued at $497.23 billion and those of hi-tech products stood at $244.28 billion, increasing 28 percent and 24.8 percent, respectively, year on year.

China has continued to perfect its policies on the processing trade, enlarging the scope of restrictive and forbidden commodities, and slowing down the growth in the processing trade. In the first three quarters, processing exports totaled $440.01 billion, showing a year-on-year rise of 21.5 percent and a decline of 1.9 percentage points in terms of the growth rate. At the same time, imports of the processing trade amounted to $266.14 billion, a year-on-year increase of 13.9 percent, and a drop of 5.7 percentage points in growth rate.

Liu Haiquan, Deputy Director of the Comprehensive Department of the Ministry of Commerce, says that in the last two years, the Chinese Government has adopted a series of measures to adjust its export structure and curb the rapid growth of its trade surplus, which has achieved some effects. In August and September, the growth rate of trade surplus came down. However, since the root causes for China's trade surplus lie in international industrial transfers, high demand of the international market and improved competitiveness of Chinese export commodities, the excessive trade surplus has not been effectively relieved. In the first three quarters, China's trade surplus surged to $185.65 billion, against $177.46 billion for the whole of last year.