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  • Dec 20, 2014
  • Updated: 11:13am
China Economy

Chinese economy expands 7.5pc, faster than expected, data shows

Gross domestic product rises 7.5pc in quarter but cooling in property market still a concern

PUBLISHED : Wednesday, 16 July, 2014, 10:16am
UPDATED : Thursday, 17 July, 2014, 1:36pm

The mainland's economy expanded faster than expected in the second quarter, indicating the government's mini-stimulus policies have taken effect, although cooling in the property sector poses risks in the months ahead.

Gross domestic product grew 7.5 per cent in the quarter, rebounding from the 18-month low of 7.4 per cent in the first quarter, the National Bureau of Statistics said yesterday. The pace exceeded market expectations of 7.4 per cent growth after Premier Li Keqiang said the economy was doing better in the second quarter than the previous three months.

Hong Kong and mainland stock markets were mixed yesterday after the data was released. The Shanghai Composite Index lost 0.2 per cent to finish at 2,067.28. Hong Kong added 0.27 per cent, or 63.32 points, to close at 23,523.28. The Shenzhen Composite Index, which tracks stocks on the mainland's second exchange, dropped 1.03 per cent, or 11.53 points, to 1,105.22.

The bureau's spokesman Sheng Laiyun said the economy was stable in almost all areas, including growth, jobs, inflation and income. But he warned that economic restructuring would cause more pain, saying: "We must not be blindly optimistic."

Sheng said corrections in the property market were set to "put pressures on economic operations in the short term".

Analysts said Beijing would need to roll out more easing steps to ensure the annual growth target of about 7.5 per cent was met.

Some urged the government to lower the reserve requirement ratio - the cash banks must keep in reserve - for more banks.

The acceleration came after Beijing rolled out pro-growth policies in recent months. These included lowering the reserve requirement ratio for some banks and revising the the way of calculating the ratio of loans to deposits with the aim of release more liquidity to the market. Infrastructure investment was brought forward and taxes for small businesses were trimmed.

"The result was slightly better than my expectation. The acceleration was a result of relatively significant policy easing in May and June after growth eased further in April," said Shen Jianguang, Mizuho Securities chief economist for Greater China.

"If the data were reliable," he said, "such a performance could give the government some reason to cheer up and keep policy stable for a while." But he added: "We'll see whether housing starts will slip further, or stabilise. The effectiveness of the recent wave of local housing policy relaxation remains uncertain."

Fixed-asset investment in the first half rose 17.3 per cent from a year earlier, quicker than the 17.2 per cent growth in the January-May period. But property investment grew 14.1 per cent in the first half from a year earlier, down from 16.8 per cent in the January-March period.

Industrial production grew 9.2 per cent in June year on year, faster than the 8.8 per cent in May. Retail sales rose 12.4 per cent, a tad slower than the 12.5 per cent growth in May.

Economists cautioned that Beijing will face challenges in defending its annual growth target.

"As China's structural property downshift continues to unfold, we expect the ... negative drag on the economy to increase" in the fourth quarter this year and into next year, said UBS Securities' economist Wang Tao .


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Without making the crucial economic and structural reforms, China's central government is like a too-caring father who has to keep on pushing his son's bicycle at the back, to maintain the speed of the bicycle and to prevent him from falling, month-in and month-out, year-in and year-out.
Chinese figures? Come on, their creditbility is so low
'Beijing will face challenges in defending its annual growth target', not only because 'China's structural property downshift continues to unfold', but also because at least some of the country's domestic savings have turned from good to bad.
Now those 'bad' savings are used to finance those 'bad' investment projects put forward by the SOEs and the local governments, but they invest just for the sake of investment, to sustain the relatively high central-government-stipulated GDP growth rate, even though they all know that the rates of investment returns no longer justify even their relatively low average cost of capital, resulting in more and more potential bad debts and worsening bank balance sheets.
The crowding out effect also greatly reduces the vigor of the country's much more efficient private sector.
A recent Chinese article says that this year's GDP price floor of 7.5% must be maintained.
Whenever this kind of no-matter-what and at-all-costs argument is put forward, my feeling is that there must be something wrong with it later.
Now the correct goal should be to increase the national income of the people, not to maintain a rigid GDP growth rate which seems to have hindered the country's long-term efforts of real economic reform.
With more income, the people will spend more, and the country's most important employment level can also be sustained this way.
Investment means useful investment, and work means useful work, not digging holes for others to fill.
Asia Pulse
7.5%, sure if one so choose to believe the official data provided, or as proeminent figures have said recently in the U.S. :
"China is a value trap... or a value add value trap," said Paul Marshall, CEO of Marshall Wace.
"China came out with it's very predictable 7.5%," said Mary Callahan Erdoes, head of JP Morgan Asset Management.
""If you're looking for bubbles to avoid... Chinese internet stocks," said Jane Mendillo, President and Chief Executive Officer, Harvard Management Company.
The recent article written by Michael Pettis says that ‘we cannot simply put the bad debt behind us once the economy is “reformed” and project growth as if nothing happened.
Earlier losses are still unrecognized and hidden in the country’s various balance sheets.
These losses will either be explicitly recognized or they will be implicitly amortized. The only interesting question, as I see it, is which sector will effectively be assigned the losses.’
He also suggests that ‘Beijing can assign the losses to the state sector, by reforming the hukou system, land reform, interest rate and currency reform, financial sector governance reform, privatization, etc.
Most of the Third Plenum reforms are simply ways of assigning the cost of rebalancing, which includes the recognition of earlier losses, to the state sector.
This is likely however to be politically difficult.
China’s elite generally benefits tremendously from control of state sector assets, and they are likely to resist strongly any attempt to assign to them the losses.’
By turning the US Feb from a good bank to a bad one, the US seems to have successfully reinvigorated her own economy recently.
Hopefully, subsequent quicker domestic economic growth in the US (which should partly be realized with the aid of the missing but sorely-needed public infrastructure investments) will gradually lower her overall debt/GDP ratio to a more healthy level in the coming years.
Perhaps the same has to be done in China at present --- her public sector still has the capability to absorb part of her massive and growing private debts, through the most important hukou/rural-land reforms.
Right now the Chinese local governments are not very enthusiastic about the country’s important hukou reform.
One of the main reasons seems to be that the local governments regard those rural farmers as a big burden --- the former has to be responsible for the latter’s social security payments (on top of all those increased housing, education, hospital and other expenditures).
No one will welcome an ugly and poor relative to live in his or her own house.
One way out is to nationalize the country’s social security system by turning it into the sole responsibility of the central government.
This should be complemented by the relaxation of the limitation to the free transfer of the rural farmers’ farming and residence land, and a more lenient tax structure.
This way, every local government in the country will compete fiercely with each other to invite the now beautiful and rich relatives to live together with them under the same roof.
There is no need for me to repeat here the vital importance of China’s coming urbanization efforts to the country’s future GDP growth and overall well-being.
The relatively high private property prices in the country's first- and second-tier cities should be sustained, because only by doing so will the rural farmers be encouraged (or forced) to choose the Middle or Western third- or fourth-tier cities as their final places of residence.
With a secure social security system, China's consumers will save less and spend more in the future.
Another reason to sustain the relatively high prices of commercial private housing in all China's cities is that, at present, only by doing so can the country's local governments obtain enough land-sale revenues to finance the construction of more affordable low-price housing for their people.
The relatively poor people only care about the availablilty of those affordable houses, not the price of the commercial private houses --- even though the latter drops on average by one-half, they still cannot afford to buy them.
Obviously, to produce enough food for the whole country, China doesn't need hundreds of millions of farmers to do so.
Also, the country doesn't require as much as 1.8 billion mu of farmland to feed her whole population.
New land reclamation can always be done in the suitable parts of the country, if needed.
The poor people in the poor African countries are starving not because they don’t have enough farmers or farmland, but partly because they are poor --- they don’t have enough money to import enough food from the foreign countries.
Where there is water, there is life;
where there is money, there is food.
And their farming techniques are not modernised enough, because, well, they're poor --- a vicious circle.
With much more richer people living in the cities, the resulting increased aggregate demand can (partly) solve the country’s problems of ghost cities, falling housing prices, excess capacities, rising bad debts, deteriorating banking balance sheets, sleeping stock market, falling GDP growth rates, rising level of unemployment, shadow banking markets, falling tax revenues, unbalanced economy, rising exchange reserves, ..., in one simple step.
Many infrastructure projects of the local governments, and most of the country’s inter-city high-speed-train systems, electricty, water and telecommunication transmission networks, will mostly become self-liquidating, thanks to economies of large-scale production.
Success breeds success.
This is China's Holy Grail.
Statistics are lies. Look at the unemployment rates in the US.




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