Tapping consumers is the key to economic health
China's stable second-quarter growth of 7 per cent, the figure the government has envisaged for this year, is heartening. Many economists had tipped it would be a few decimal points lower, their pessimism based on doubts about the effectiveness of structural reforms and macro-economic measures in bringing about a turnaround. That, in turn, had deepened gloom about the global outlook - no nation is being counted on more to reverse lacklustre forecasts. Comfortingly, the data appears to prove policies of shifting the economy away from export-led to consumer-led growth are working.
A rebound in exports is likely to have had an impact on the GDP figure. But the days of trade driving development and propelling growth passed with the global economic crisis in 2008, and the outlook for only a slow recovery in the world economy - the World Bank has forecast 2.8 per cent global growth this year - validates the government's new approach. In the long term, it rests on promoting private businesses by opening up the state-owned sector, developing high-tech industries and cultivating an environment for consumption. The figures show an early success: Domestic consumer spending accounted for 60 per cent of growth in the first half, compared to 51.1 per cent for the same time last year.
To lay to rest more immediate concerns, authorities have since November implemented a series of measures, among them four interest-rate cuts, tax breaks and pressure on local government officials to increase spending on infrastructure projects. Promising signs have come of late, with property prices rising after a slump along with increases in industrial production and new bank loans. But proving how challenging stabilising the economy is, the stock market has been in turmoil and a slowdown in retail sales and fixed-asset investment has deepened. In keeping with pressure for more stimulus, the People's Bank of China on Tuesday said it would ensure "adequate" liquidity and maintain "prudent" policies.
Two consecutive growth rates of 7 per cent give a sense that the economy has bottomed out. Authorities predict a modest rise for the next quarter. But there is every need for caution. Pushing economic reform means sacrificing growth, while the more money supply is eased, the higher the risk of bad debts.
Confidence in policy is key to prosperity. Slower economic growth and falling commodity prices create uncertainty. Continuing to tap into consumption will ease worries.