China's Economy Continues To "Slow Down"

Midsummer, China

Many analysts believe that the economic slowdown in July is within the expected level, and the Chinese economy is gradually moving towards a "soft landing" from the strong growth in the second half of 2009.

In the coming months, policies for regulating the by-products of last year's economic stimulus, such as cleaning up local government financing platforms, real estate regulation and other policies, will continue. Energy saving and emission reduction and elimination of backward production capacity are almost impossible to relax in the last few months of the 11th Five-Year plan.

The Federal Reserve postponed the withdrawal of quantitative easing monetary policy and the Bank of England lowered its economic growth expectations in the next three years, which cast a shadow over the prospects of global economic recovery.

If internal active adjustment and external uncertainty stack up, bring China's economy.

"Moderate growth rate is the best environment for structural adjustment. Policy should not always consider short-term.

In the process of structural adjustment, the short-term pain of economic growth is unavoidable.

Over the past ten years, China's economy has continued to grow at a rate of nearly 10%, but the process of structural adjustment and industrial upgrading is very slow.

How to find a balance between economic growth rate, managing inflation expectations and adjusting economic structure is the biggest test for policy makers.

Regulatory effects show

In July, China's above scale industrial added value increased by 13.4% over the same period last year, an increase of 0.3 percentage points lower than that in June.

Investment growth was also significantly lower than expected. From January to July, the cumulative growth rate of fixed asset investment in cities and towns was 24.9%, down 0.6 percentage points from the first six months.

According to the breakdown of industrial data, the growth rate of industrial production dropped in July, mainly due to the slowdown in the growth of the six high energy consuming industries.

Sheng Yuan Yun, spokesman for the National Bureau of statistics, said at a news conference in August 11th that this is mainly because the Chinese government has increased the supervision and elimination of energy conservation and emission reduction since the two quarter, which has a downward impact on industry.

The slowdown of investment and production in high energy consumption and high polluting industries can be confirmed from the orientation of bank credit.

The head of a loan management department of a state-owned bank told this reporter that now that the structural adjustment has just begun, the banks have more cautious and wait-and-see attitude towards the loans for the backward production industry. The new projects that do not conform to the national energy conservation and emission reduction standards will certainly not do so. The items that have been put in loans will be phased out if they do not meet the standards, even if the benefits are relatively good.

Worries about investment are not limited to energy conservation and emission reduction. Real estate new deal "medicine" is slowly appearing in the field of real estate investment.

The first thing to bear is the sale of real estate.

In July, the real estate sales area decreased by 15.4% compared to the same period last year, and in May and June only dropped about 3% compared to the same period last year.

The new construction area and construction area of real estate continued to grow by 66.5% and 43.6% respectively in July.

Investment in real estate development remained high, with an increase of 37.2% over the same period from January to July.

But this is more affected by the lower base last year.

"The next few months, the new construction area and overall construction activities will further weaken, by the fourth quarter of 2010, the new construction area may decline year on year."

Wang Tao, chief economist of UBS Securities, predicts.

Zhuang Jian, a senior economist at the Asian Development Bank, believes that the growth rate of investment in real estate development is slowing down. On the one hand, it is related to the lagging effect of policies on real estate development investment, and it is also the embodiment of policy regulation.

"The government now emphasizes that developers can not hide their land and encourage developers to develop as soon as possible, while eliminating unhealthy bubbles and rationalizing the relationship between supply and demand of real estate.

In addition, the government is also increasing investment in affordable housing. "

Zhuang Jian told this reporter.

For investment growth, the government remains optimistic.

Sheng Lun believes that the government strictly controls new projects and no longer increases in principle, which has led to a certain decline in fixed asset investment. However, the Chinese government has some follow-up investment plans, such as the western development and the regional economic development plan in 2010, which will lead to investment growth.

At the same time, the power of private investment is also gradually increasing.

Sheng Laiyun introduced that between January and July this year, private investment grew by 31.9% over the same period last year, 7 percentage points higher than the growth rate of fixed assets investment in cities and towns.

It is normal for the growth rate to fall.

Wang Xiaoguang believes that GDP growth is about 8%, and 7%-9% is normal and good, which is conducive to structural adjustment.

From the data in July, the effect of structural adjustment in the medium and long term is still not ideal.

It is noteworthy that the growth rate of consumption has dropped. In July, the total retail sales of social consumer goods grew by 17.9% over the same period last year, while the increase was 0.4 percentage points lower than that in June.

Zhuang Jian said that if the price increases were taken into consideration, the decline in consumption in July would be more obvious. This is a little worried, and it is necessary to pay attention to it.

China has always wanted to expand consumption and increase the contribution of consumption to economic growth. Therefore, we need to make great efforts to reform, such as raising the minimum wage standard and the reform plan of income distribution.

In addition, the government should increase investment in medical and health services and affordable housing.

Wang Xiaoguang is doubtful about the effect of eliminating backward production capacity.

"Can so many high energy consumption projects last year be reduced?" he worried that if the economy grew by 10%, the enterprises would be very profitable. How could they be willing to turn it off? "The best way to eliminate backward production capacity is to moderate economic growth and naturally eliminate it by market competition."

The head of the loan management department of the state-owned banks expressed similar concerns to the correspondents. "The list of enterprises that recently eliminated backward production capacity was listed two or three years ago, but the local government was unwilling to turn it off.

In addition, a lot of infrastructure projects were built last year, and demand for steel and cement will increase the difficulty of eliminating capacity. "

Inflationary pressures still exist

In the process of economic slowdown, inflation pressure can not be ignored.

In July, China's consumer price index (CPI) rose 3.3%, a year-on-year high, mainly due to the tail up factor and the sharp rise in food prices.

In the July CPI year-on-year increase, there were 2.2 percentage points of the tail factor, and the other 1.1 percentage points were affected by the new price increase factor.

The rise in food prices contributed to about 70% of the new price increase.

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With the coming of the peak season of grain demand, the negative effects of heavy rain and flood on the pportation and production of 18.35,0.26,1.44% are stimulating the prices of agricultural products.

According to the Ministry of agriculture data, the wholesale price index of agricultural products rebounded to 104% in July.

In the international market, futures prices of agricultural products including soybeans and wheat have increased in recent years.

The negative factors of the international food supply decrease gradually, and will also bring about the price of domestic agricultural products.

Sheng Lai Yun believes that although there are certain uncertainties in the price changes of agricultural products, especially the international wheat production will stimulate the domestic market, there are many factors that affect the downward trend of CPI.

On the whole, the upward force of price restraining may be greater than that of pushing prices up, and prices are expected to remain basically stable throughout the year.

According to the National Bureau of statistics, after August, the influence of CPI's tail warp began to weaken. In June and July, the influence of the tail is 2.2%, the tail factor of August will fall to 1.7%, and September will continue to fall to 1.3%.

Zhang Zhiwei, a macroeconomic analyst at China International Capital Co (hereinafter referred to as CICC), predicts that CPI may still face greater upward pressure in the coming months, but it will gradually drop to around 3% by the end of the year.

The main reason is that China's grain reserves depend mainly on domestic supply, and international grain prices have little impact on the domestic market. The domestic economy is expected to slow down in the second half of the year, and the non food parts of CPI may face downward pressure; the Euro American economy is facing challenges in the second half of the year, and the possibility of a sharp rise in the international commodity market price is less likely, and the risk of imported inflation has also been reduced.

Of course, cautious worries also exist.

The spread of floods, the reform of resource prices and wage growth in the second half of this year are some uncertain factors that may push up the annual inflation level.

Wang Tao believes that food prices are likely to rise further in the next two or three months, pushing CPI up to 3.5%-4%'s year-on-year high.

"The growth rate of service prices accelerated in July, which also reflects the pmission of intrinsic inflationary pressures brought about by credit expansion in the early stage."

However, analysts believe that inflationary pressures will not trigger monetary policy adjustments.

Wang Qian, chief economist of JP Morgan, believes that although CPI has broken through the red line of 3% again, the central bank will not raise interest rates before the fourth quarter, given the slowdown of growth and the pressure of import cost pressure in recent months.

If signs of global economic recovery are evident in the four quarter and inflation expectations are rising again, the benchmark interest rate may rise by 27 basis points to curb inflation expectations.

Wang Tao also believes that as the upstream price pressure declines and bank credit growth continues to be effectively controlled, no adjustment will be made in monetary policy instruments such as loan growth targets or interest rates during the year.

The central bank will take more administrative measures and slightly accelerate the pace of RMB appreciation.

Assault "grab export"

Unlike the internal driving force, the external demand engine is stronger than expected.

In July, China's monthly export value and import and export value once again refreshed its historical record, with an import and export value of US $262 billion 310 million, an increase of 30.8% over the same period last year, of which, exports of US $145 billion 520 million, an increase of 38.1%; and imports of US $116 billion 790 million, an increase of 22.7%.

The trade surplus reached US $28 billion 738 million in July, the highest level since February 2009, at a historical high.

After seasonally adjusted, exports and imports grew by 39.4% and 27.3% in July, respectively, with an increase of 1.2% in exports and 5.6% in imports.

Export growth is higher than expected.

Since May, China's exports have jumped considerably.

The market generally believes that this is due to the expectation of RMB appreciation and the expected adjustment of export tax rebate policy.

Since July 15th, the Chinese government has abolished export tax rebates for some steel and non-ferrous metals.

Compared with the same month last year, this policy raised the cost of related commodity exports in the second half of 7, but also prompted enterprises to "export" in the first half of the month.

Customs data show that the "grab export" effect in July exceeded the negative impact of cost increase.

In the first seven months of this year, China's steel exports increased by 92.4% over the previous year, 9.2 percentage points higher than the first half of the year, while the cumulative growth rate in the first half of the year was 25.2 percentage points higher than that in the first five months.

Steel "grab export" phenomenon is obvious.

However, the export situation in the future is not optimistic.

In the Chinese Manufacturing Purchasing Managers Index (PMI) issued by China Federation of logistics and purchasing, the new export orders index declined for the three month in a row.

In the PMI announced by HSBC China, the new export orders index has been in the 50% place of "prosperity and demarcation" for two consecutive months.

"China's export growth will continue to slow down in the second half of the year," CICC's research department believes that leading indicators and peripheral economies show high and low export conditions, coupled with the high base effect generated by the gradual recovery of exports in the second half of last year. It is expected that export growth will fall to 10% left and right in the second half of the year, but the risk of the two global bottom is less. The impact of slowing external demand on China's economy is still controllable.

The expansion of trade surplus has enhanced the expectation of RMB appreciation.

Mark Williams Mark Williams, a senior research economist at Capital Economics, said that exchange rate would be a focus if China still maintained a large scale of favorable balance.

Although China's central bank has announced nearly two months to restart the exchange reform, the best description of the RMB exchange rate is "pegging the US dollar".

The research department of CICC expects that the trade surplus in the three quarter will continue to be high due to faster growth in imports, which may push up the appreciation of the renminbi.

It is expected to rise by 3% before the end of the year and 6.62 against the US dollar.