SCIO briefing on China's current economic performance

Speakers:

Yang Weimin, vice minister of the Office of Central Leading Group on Financial and Economic Affairs;

Wang Zhijun, director of Division One on Economic Affairs, the Office of Central Leading Group on Financial and Economic Affairs;

Cong Liang, director-general of the Department of National Economy, the National Development and Reform Commission;

Xing Zhihong, spokesperson of the National Bureau of Statistics and director general of the Department of Comprehensive Statistics of the bureau

Chairperson:

Xi Yanchun, vice director-general of the Press Bureau, State Council Information Office

Date:

July 27, 2017

Xi Yanchun:

Ladies and gentlemen, good afternoon. Welcome to this press conference. The State Council Information Office has held several press conferences this month to release latest economic data and provide relevant explanations. To help you gain a better understanding of the current situation, we are delighted to have with us: Mr. Yang Weimin, vice minister of the Office of Central Leading Group on Financial and Economic Affairs; Mr. Wang Zhijun, director of Division One on Economic Affairs, the Office of Central Leading Group on Financial and Economic Affairs; Mr. Cong Liang, director-general of the Department of National Economy, the National Development and Reform Commission, and Mr. Xing Zhihong, spokesperson of the National Bureau of Statistics and director general of the Department of Comprehensive Statistics of the bureau. They will introduce China's current economic performance and answer some of your questions.

Now, let's welcome Mr. Yang to give his briefing.

Yang Weimin:

Ladies and gentlemen, good afternoon. It's a pleasure to meet you. As you know, the Communist Party of China (CPC) Central Committee recently held a special meeting to review national economic performance in the first half of this year and arrange the relevant work for the remainder of the year. The press release has been distributed to you. Now, I'd like to brief you on how the Political Bureau of the CPC Central Committee viewed China's economic performance in the first half of this year and what will be carried out in the second half.

1. How to understand China's economic performance in the first half of this year.

Generally speaking, in the first half of this year, Chinese economy produced a stable performance and moved in a positive direction, with further structural adjustment.

What are the reasons behind this conclusion?

First, economic development was stable, with all major economic indicators standing in an appropriate range, and some even surpassing expectations. National GDP expanded by 6.9 percent, 0.2 percentage points higher than the same period of last year, reaching the highest level since the fourth quarter of 2015.

Second, the quality and efficiency of the economic performance were both enhanced. Fiscal revenue increased by 9.8 percent, and the profits of industrial enterprises above designated size increased by 22 percent.

Third, people's livelihood continued to improve. In both rural and urban areas, a total of 7.35 million new jobs were created, approximately 180,000 more than the same period of last year. Consumer prices remained stable, with the CPI growing by 1.4 percent year on year, and maintaining the same growth rate as the first quarter of this year. Personal per capita disposable income increased by 7.3 percent which was adjusted for inflation, higher than the economic growth rate. Remarkable achievements were made in poverty reduction. New progress was made in ecological conservation, environmental protection and other areas.

Why are we convinced that the structural adjustment has been deepened? Supporting evidence can be provided in three aspects:

First, consumption, investment and export growth had obviously become more balanced as we reviewed the recent structure of demand. The retail sales of consumer products grew by 10.4 percent, reinforcing the role of demand as a driving force to cement economic growth gauged by a contribution rate of 63.4 percent. Investment in fixed assets surged by 8.6 percent, with private sector investment increasing by 7.2 percent for a growth of 4.4 percentage points year-on-year. Exports and imports soared by 19.6 percent, with 15 percent growth in exports and 25.7 percent for imports. The international balance of payments was positive, the current account maintained surplus and the foreign currency reserves were above US$3 trillion.

Second,the industrial structure was much improved: the service industry continued to grow fast, supply-side structural reform in the agricultural sector kept advancing, industrial structure was improved and overcapacity problems continued to be alleviated. Moreover, the driving force of innovation started to take effect and various industries pressed ahead with upgrading and new technologies expanded rapidly. The growths of high-tech industries and equipment manufacturing, respectively standing at 13.1 percent and 11.5 percent, are higher than the increase of the entire industrial sector and the GDP. Besides, the industrial organizational structure saw further improvement as demonstrated by the rise of the concentration ratio of competitive industries and the further segmentation of small, medium and large enterprises. At the same time, controls were effectively strengthened over the real estate market.

Third, judging from the regional structure, the coordinated efforts of three major strategic programs, namely, the Belt and Road Initiative, the concerted development of Beijing, Tianjin and Hebei Province and the operation of Yangtze River Economic Belt are obviously paying off. China's eastern, middle and western region have all seen improvements, with good momentum being sustained in the east, development expanded in the middle and the west and signs of recovery have appeared in the northeastern region.

The good performance of the economy in the first half this year mostly resulted from the proposal of the economic new normal charted by the CPC Central Committee to create a unified view on the future course of national economy since the 18th CPC National Congress.

We need to uphold clear thinking while observing the future of the economy. President Xi has more than once stressed that we need dialectic views and farsighted visions to address the issue in particular. In doing so, we need to take into consideration both the current economic course and its future trajectory, both the indexes and expectations and both the achievements and problems.

Given the outlook of China's economy in middle and long term, positive changes can be seen. General development has maintained good momentum and it will keep improving in the long term, the structure of supply and demand has been essentially transformed, the combined expectations of enterprises and market confidence have been boosted and the driving force of the economy has been reinforced. Such progress has not only stimulated the national economy but also contributed to the recovery of the world's economy.

More to the point, the new development conception and supply-side reform have gained popularity, especially, among the local governments and enterprises, causing them to change for the good. Conceptions, referring to a fundamental change and a strengthened force, are attempting to reach a more advanced economic structure by spearheading a transformation in development modes, improving the economic structure and renewing the economic driving force. Therefore, I feel upbeat about China's economy and I am confident it will by no means fall into the middle-income trap as some have alleged.

Meanwhile, we are aware that China is at a crucial stage in its economic development where structural reform is still underway. Particularly, supply-side structural reform is deepening, with many challenges to be overcome. Despite stable performance with good momentum in the first half (H1) of this year, there are problems in China's economic development. Some of them are deep-seated, such as poor circulation of the real economy, the arduous task of managing financial risks, the lack of long-term mechanisms to ensure the sound and stable development of the real estate market as well as mounting pressure from increasing business costs.

Furthermore, the economic prospects for different regions, sectors and enterprises are increasingly divergent. Given the deep integration of the Chinese economy in the world economy, the latter, though improved in H1 this year, is transmitting its uncertainties to the former.

2. The work we will do in the second half of this year

The CPC Central Committee and the State Council stressed that to deliver sound and sustained economic growth in H2 of this year, we must make it our top priority to remain committed to the underlying principle of making progress while keeping economic performance stable. This serves as a major principle of China's governance and a reliable method for its economic development.

Ensuring stability requires making progress while maintaining stable overall performance. However, the stability we pursue is not equivalent to inactivity or stability achieved through strength and rigidity. Instead, we should endeavor to make progress while striking a balance, seizing opportunities and moderating our pace. New achievements should be made this year in managing financial risks and continuing supply-side structural reform.

We should stick to the guidelines set by the Central Economic Work Conference 2016 and the Report on the Work of the Government 2017, and seek progress in all areas of our work. To be specific, we will do the following: keep macro-level policy consistent and stable; pursue a proactive fiscal policy and a prudent monetary policy; focus on supply-side structural reform; expand aggregate demand as appropriate; do better in guiding expectations; and strengthen the role of innovation in driving forward development.

We should ensure that we achieve three essential goals, namely, maintaining stable and sound economic development, continuing supply-side structural reform and forestalling systemic financial risks.

Taking into account both the current situation and the long-term development needs, the CPC Central Committee and the Sate Council stressed that, while seeking progress in all areas, we should focus on the following six tasks: first, firmly continuing supply-side structural reform; second, actively yet gradually dissolve the accumulated debt risks of some local governments; third, suppress financial chaos; fourth, stabilize the real estate market; fifth, maintain the steady growth of foreign and private investment; sixth, word hard to improve people's livelihoods. That concludes my introduction. Now officials from National Development and Reform Commission, National Bureau of Statistics and the Central Leading Group on Financial and Economic Affairs as well as myself would like to take your questions. Thank you.

Xi Yanchun:

Thanks to Mr. Yang Weimin for his introduction. Now, the floor is open to questions.

CCTV:

Since the second half of last year, the economy has shown signs of bottoming out. Production, prices and profit indicators are visibly picking up. One view is that these improvements still rely on real estate development and infrastructure investment. Mr. Cong, what is your opinion? Thank you.

Cong Liang:

Mr. Yang has just made a detailed evaluation on the whole economic situation. Since the 18th CPC National Congress, the CPC Central Committee and the State Council have established a judgment on the new normal of economic growth. They have steered the new normal with new concept of development, focused on improving quality and efficiency, and took supply side structural reform as the main line. Under the combined effect of these policies, some positive changes have taken place since the second half of last year. These positive changes were achieved on the basis of structural optimization. We didn't implement any powerful stimulation as was the case with Western countries. Instead, we are vigorously promoting mass entrepreneurship and innovation and revitalizing the real economy. We focus more on promoting development by speeding up structural adjustment and the conversion of old and new growth drivers, so as to achieve steady economic development.

Specifically, there are a few aspects to consider: First, the entire industrial structure has seen continuous optimization, with the service sector maintaining rapid development. From 2013 to 2016, the average annual growth of the added value for the service sector reached 8 percent, or 0.8 percentage point higher than the GDP growth rate. The service sector contributed 44.9 percent to the economic growth in 2012 and up to 58.2 percent in 2016. In the first half of this year, the service industry grew by 7.7 percent, contributing 59.1 percent to economic growth. From the point of view of proportion, service sector's added value accounted for 46.7 percent of the total in 2013 and 51.6 percent in 2016, a rise of 6.3 percentage points from 2012. In the first half of this year, its proportion increased to 54.1 percent. From an annual perspective, looking at each quarter, the contribution of the service sector might undergo a small change. However, viewed long-term, this change has been the most obvious in the last five years.

Second, the quality was improved on the basis of stability for the secondary sector. As the strategies of innovation-driven development were implemented, including the rapid advance of the "Made in China 2025" plan, as well as in-depth boost from the "Internet Plus" action plan and the construction of "Digital China," the transformation and upgrading of traditional industry was able to move ahead faster. The whole economy, especially the industrial economy, was able to maintain stable growth. Looking at the internal structure of industry, we can see that in the traditional industries - especially from the angle of cutting excessive industrial capacity - many invalid processes and products of low efficiency were reduced gradually, while the high-level and efficient parts of industry were able to play an increasingly important role. So. the supply and demand relationship of the whole market saw a relatively positive and substantial change. For example, the coal industry cut capacity totaling 290 million tons in 2016, and, since the beginning of this year, it has cut a further 111 million tons. This produced obvious easing in the excessive supply situation facing the coal market. Regarding the steel industry, in 2016, production capacity was cut by 65 million tons, while another 40 million plus tons has been eliminated so far this year. What's more, more than 100 million tons of substandard steel were prevented from being produced through bans based on safety and environmental protection standards. There was a great change in the supply and demand relationship in the entire steel industry. The industries with higher value added potential grew faster than traditional ones. Take, for instance, the equipment manufacturing industry. In 2016, its proportion was 32.9 percent, 4.7 percent more than what it was in 2012. The high-tech industry's proportion was 12.4 percent in 2016, three percent more than in 2012. So, there were relatively obvious changes in the entire supply and demand relationship, the transformation and upgrading of traditional industries, as well as the development of new industries. Especially, green development saw some achievements, and the utilization efficiency of energy resources was clearly raised. The energy consumption per unit of GDP dropped by 17.9 percent in 2016 compared with 2012, and the main pollutant emissions kept decreasing. During this period, the economic aggregate kept expanding.

While the structure was optimized, there were some changes in the demand structure, and consumption has become the main force. Currently, consumption's contribution to economic growth was 63.4 percent in the last half year. Consumption's fundamental role functioned efficiently. Regarding investments, those in ecological environmental protection, education, irrigation and innovation, including the investment in technology transformation aspects, all increased by double-digit figures. So. the whole economic structure, no matter if it is about industry structure or demand structure, has seen a lot of positive changes, which also have created their own trends. Viewed from a long-term prospective, this positive trend is very clear. Thanks.

Phoenix TV:

Recently, the "gray rhino" has been mentioned several times. The Chinese media first reported "gray rhino" threats and said these and "black swan"eventsshould be prevented. And the foreign mediaalso reported that China should pay attention to "gray rhino" threats. How do youevaluate this matter? Thank you.

Wang Zhijun:

Thank you. Firstly, I'd like to explain the meaning of the"gray rhino" threats and the "black swan"events respectively. The"black swan"event is a metaphor that describes an event that comes as a surprise. As for the "gray rhino,"it is known that the rhino has a big body, so the word meansthat a serious matter has not attracted enough attention, which leads to a serious event, even though it could have been expected in the early stage. The CPC Central Committee is effectively preventing and defusing risks in the financial sector. And the CPC is always defending the bottom line of no outbreak of systemic risk. Both "black swan" events and "gray rhino" threats may offend the bottom line of financial risk. However, as I mentioned, these two events differ in nature. So, we should have different ways to deal with and prevent risks.

Regarding "black swan" events, they are unexpected, and so we should keep calm and have a high sensitivity, especially in regard to the condition of an unstable economic base. We will become more aware of potential dangers and always keep potential risks in mind. We will strengthen the ways to trace, monitor and analyze various matters and improve the prediction and precaution system for identifying emerging issues as soon as possible. We will make full preparations and take preventive measures

In "gray rhino" threats, the matters have already appeared. So, we should have crisisawareness and adhere to a problem-oriented approach. Facing "gray rhino" threats, including a shadow banking system, property bubbles, inflated local debt levels and illegal fund raising, we should size up the situation, solve problems in order of importance and urgency, pay attention to the key factors, then take effective measures and properly solve problems. Thank you.