China News Service:
The steady and sound development momentum of the national economy was more pronounced in the first half year. However, I would still like to ask why the CPI grew comparatively slowly and the PPI suffered a drop from a high level?
Xing Zhihong:
Thank you for your question. We often say that prices are a comprehensive reflection of supply and demand. In fact, the pattern of supply and demand has changed in a positive way this year, with the relationship between them markedly improved.
While analyzing changes in the CPI, we can see the figure has remained generally low for this year, as it has mainly affected by declining food prices, particularly pork, fresh vegetables and eggs, which declined continuously in the first half of this year. More specifically, pork and fresh vegetable prices declined for five straight months from February, and egg prices witnessed a consecutive eight-month decline, with only a slight new change recently.
We all know food consumption is relatively stable among residents, and its elasticity is relatively small, so any decline in food prices is mainly due to increased supply. Overall, so far this year, the situation of food supply in pork, fresh vegetables and eggs has been comparatively good, leading to significant price falls. However, we also noticed that prices in non-food sectors rose by 2.3 percent over the same period of last year, 1.1 percentage points higher than the same period of last year. Among them, the industrial consumer price rose by 1.9 percent compared to the same period of last year; however, last year's figure was 0.3 percent lower than previous year. Service-related project prices rose by 2.9 percent in the first half of this year, an increase of 0.9 percentage point year-on-year.These two statistics reflect a marked rise in market demand in the industrial consumer sector and in the service consumer sector. They are also consistent with the positive changes in our current industrial production and service development.
Moreover, in regard to the PPI, we can see the growth of the figure has gradually slowed down in recent months, mainly influenced by changes in raw material prices. Last year, a series of raw material prices – mainly involving coal, iron and steel, nonferrous metals and petroleum – rose fairly drastically to reach a high point in February this year before a downward adjustment took over. Take the oil exploration industry as an example. Prices rose by about 70 percent overall in the first quarter and rose only by about 25 percent in the second quarter, obviously, a huge fall. As for the steel industry, namely ferrous metal smelting and rolling processing, its price rose by more than 30 percent in the first quarter and about 21 percent in the second quarter. Such large price movements have great impact on the overall lmovement of the PPI. However, at the same time, we have also noticed that prices in most industrial sectors are still rising. Among the 40 surveyed sectors in the second quarter, prices in 34 saw year-on-year growth. At the same time, the trend of price changes in the equipment manufacturing, consumer goods manufacturing and other industries is in the opposite direction with year-on-year growth continuing to expand. The second quarter witnessed a higher increase of prices in 25 related sectors compared to the first quarter. This reflects an overall upward boom in our entire industrial field, which is a very positive change for the development of the industrial sector. Thank you.
NET(Japan):
Many cities have published house purchasing restrictions. Meanwhile, the growth of real estate investment slowed down in the first half of this year. What is the trend for the next half of the year? What will be its impact on the GDP?
Xing Zhihong:
Thank you for your question. Since last year, China has implemented a new round of property market regulations. There are two main tasks: one is to control property prices and to fend off risks in the first-tier and second-tier hot cities; the other one is to reduce the excess inventory of property in the third-tier and fourth-tier cities. The new round of work is different from before, owing to the new guidelines of giving guidance tailored to the local situation and implementing policies suited to the location. Under these circumstances, the growth of real estate investment slowed down, but not majorly.
The investment in houses increased by 10.2 percent from January to June; while the growth decreased by 0.2 percent in June comparing to that from January to May. All of the above was owing to the guidelines that I mentioned before. Commercial housing sales increased by 24.5 percent in non-key cities, maintaining a growth rate of 20 percent.
The growth of house sales slowed down mainly in the first-tier and second-tier cities, but the regulations are not only targeted at curbing purchases, loan and sales. For solving the contradiction between supply and demand and increasing the supply of land and residences, the range of changes in real estate investment is not as high as before. In general, the growth of real estate investment is expected to register a slower but stable performance. Thank you.
China National Radio:
You mentioned the composition of CPI just now. The data for a certain period of time, especially for the first half of this year, showed that the growth of food prices had been relatively stable with a slight decrease, while the prices in the service sector rose visibly. It indicated that the sub-indices of different CPI categories are moving toward different directions. What do you think of this change? Does it signify the upgrading of consumption is accelerating? What effects will the continuous price rise in the service sector have on the future trend of CPI? Will it impose certain pressure to the CPI target of this year? Thank you.
Xing Zhihong:
It is certain that the CPI target for this year will be achieved. As I introduced just now, prices in the service industry are increasing, and the main reason lies in the high consumption needs in this sector, which has lasted for a long time.
The price increase of the service sector has been maintained at a quite stable figure of over 2 percent. There are some long-term factors supporting the growth. In addition to the impact of consumption upgrading, rising labor costs also contribute to the higher price increases in the service sector than other industries.
However, looking at the overall price changes, the supply of industrial products still exceeds demand in general. The food sector maintains a relatively stable price increase under government regulation, and the overall price level of the service sector shows a stable trend, so the CPI will continue to rise moderately. In fact, the core CPI is relatively stable after deducting food and energy prices. Given these facts, the overall situation will remain stable. Thank you.
Xi Yanchun:
Thanks again for the explanation of Mr. Xing Zhihong, and thank you all. Our press conference today will end here.