Research Update
27
AprOn April 19, 2017, National Academy of Development and Strategy (NADS) and School of Economics of Renmin University of China (RUC), jointly with China Chengxin Credit Management Co., Ltd., held the Workshop on Monthly Macroeconomic Data under “China Marcoeconomic Forum” at RUC. The workshop analyzed and interpreted the macroeconomic data of the first quarter of 2017, with Yang Ruilong as the moderator, who is the Co-President of Institute of Economic Research of RUC.
Liu Yuanchun, Vice President of RUC and Executive Dean of NADS, Niu Li, Director of Macroeconomic Research Office of Economic Projection Division under State Information Center, Zhang Yongjun, Deputy Chief Economist of China Center for International Economic Exchanges, Yan Yan, President of China Chengxin International Credit Rating Co., Ltd. and Co-Vice President of Institute of Economic Research of RUC, as well as other experts and scholars attended the workshop. Yu Chunhai, research fellow of NADS and professor at School of Economics of RUC delivered an analysis report on monthly macroeconomic data on behalf of the task force.
The report noted that in the first quarter of 2017, China's macroeconomic performance was good. In view of GDP growth and changes in the forces of supply and demand, the growth trend of profits of industrial enterprises, as well as the changing track of the price index and the climate index, we could think that there were adequate signs of macroeconomic bottoming out in China. On the occasion of the macroeconomic bottoming out, we had to focus on some imbalances that have emerged or were likely to emerge, for example: 1) demand structure was imbalance because the growth rate of fixed investment was faster than that of consumption; 2) the export expansion under the original product structure might be detrimental to domestic structural adjustment; 3) the sustained growth of the service trade deficit might lead to tendency worsening of current account, posing a threat to domestic service industry; and 4) the decline in foreign exchange reserves was a result of changes in China’s external asset structure, with the private sector directly exposed to the impacts of international financial shock.
In this regard, the task force proposed that the priority was to take effective measures in terms of financial system, industry access and market order, so as to stimulate market-oriented private investment. Second, efforts should be made in many ways to drive household consumption, including the promotion of employment and income growth, improvement of the social security system and increase of the supply of high-quality products and services. Third, measures should be taken to make the social cost of the export industry explicit by strengthening environmental standards, labor standards and intellectual property protection, while unnecessary means of export promotion should be eliminated to inhibit adverse impacts of rapid expansion of export under original structure of the exports on the adjustment of domestic supply structure. Fourth, focus should be put on vigorous development of professional financial institutions with the capability of allocating transnational financial assets to alleviate the direct impacts of international financial risks on domestic residents, especially on households.
In the second session, the participants reviewed and commented on the macroeconomic data and analysis reports in the first quarter and put forward specific policy suggestions.
Niu Li, Director of Macroeconomic Research Office of Economic Projection Division under State Information Center, said that the current macro-economy is indeed at a turning point, and many discussions have been conducted to identify whether it is a starting point of a new period or the beginning of economic recovery. But figures show that all aspects are better than expected. The growth rate of GDP, especially that of added value of industries above a designated scale reached 7.6% in March, much better than before. These industries have shown strong performance in such indicators as power generating capacity and volume of railway freight. Overall, China's macro-economy is still characterized by supply-side stabilization and demand-side weakness.
Zhang Yongjun, Deputy Chief Economist of China Center for International Economic Exchanges, believed that in terms of current macroeconomic situations, figures of the first quarter show the overall situation is better than expected, but we cannot say China's economy has entered a new period. Among the three major demands, the export growth rate relating to the export demand and the domestic investment relating to the investment demand have registered stronger rebound than expected, which are closely related to the dynamics of real estate market, Brexit and other short-term factors, thus it is difficult to maintain further growth at a rapid speed. Zhang Yongjun said from the viewpoint of demand side, economic rebound is relatively optimistic in the first half year but will face downward pressure to a certain extent in the second half year.
Liu Yuanchun, Vice President of RUC and Executive Dean of NADS, said in the discussion session that China is experiencing transition from weak recovery period to strong recovery period, so that the overall development trend this year is rapid development in the early stage and stable development in the late stage. Macroeconomic data in the first quarter have shown better economic performance than expected, which is attributed to five major supports, that are, steady growth policies issued last year are producing ongoing benefits; external demands are improved and witnessing comprehensive rebound; the overall forecasting and some benefits of political cycles begin to work; the supply side undergoes structural reform, especially in some industries, production capacity cut is replaced by production output reduction, playing an important role in bringing market space and price benefits; and real estate market is still booming, not meeting the wishes and expectations of regulators. The stability of good trend, in fact, closely relates to the above mentioned five factors. Professor Liu believed that although the current economic rebound which is proceeded beyond expectation is unstable and it is impossible to maintain the economic trend of the first quarter, US economic bottoming out in 2014 has contributed to the overall recovery and rebound of the world economy; while domestically, after the Sixth Plenary Session of the 18th Central Committee of the CPC, particularly since the formulation of the CPC Central Committee with General Secretary Xi Jinping as the core, China has made overwhelming progress in the evolution of political ecology and anti-corruption, so that a lot of confidence indexes have been reversed. These two factors will effectively work in the first half year of 2018 and create a new balanced environment that is conducive to the continued positive development of the economy.
Professor Liu Yuanchun also said that given the debt cycle has not reached the bottom, the debt problems have not been alleviated, the current financial order is in controversy and the RMB is not stable, China has to tighten relevant policies, thus resulting in a slowdown in the economy in the next six months. This is why China’s economy will experience rapid development in the early stage and stable development in the late stage.
Yan Yan, President of China Chengxin International Credit Rating Co., Ltd. and Co-Vice President of Institute of Economic Research of RUC, proposed in the discussion session that from the perspectives of GDP growth, real variables reflecting economic growth, consumption contribution, differentiation of industrial structure and changes of monetary conditions, the sustainable economic growth is facing certain downward pressures. Therefore, we should cautiously identify whether China’s economy has entered a new transition period. On the whole, the second quarter may experience moderate economic recovery while the third and fourth quarters may witness economic decline. Thus we say China’s economy will experience rapid development in the early stage and stable development in the late stage.
"Workshop on Monthly Macroeconomic Data" is regularly held (once a month) under “China Macroeconomic Forum”—a well-known forum launched by NADS. With the highlight of “time efficiency, academic feasibility and policy enforcement”, the workshop aims to gather thoughts from governmental departments, industries and academia, and analyze macro data in a timely manner, so as to take the pulse of Chinese economy and provide policy suggestions.