Bloomberg:
My first question is on industrial production. If you look at the export data for June, there was a shrink of 1.3%, but industrial production is up 6.3% in the same period. There has been a substantial divergence between exports and industrial production over the course of the whole year. And especially if you look at the PMI numbers. New export orders are down about 46%, and the overall PMI numbers are also below 50%. How do you explain the divergence between exports, the PMI and industrial production data which seemed very stable? The second question is how much of the contribution of net exports is due to the fall in imports? Imports have fallen and exports have also fallen. But imports have fallen a lot more, which will lead to a bigger increase from net exports in the contribution to GDP. So, how much is the effect of the contribution of net exports to GDP is due to the decline in imports? Thank you.
Mao Shengyong:
Thank you for your two important questions. The first question is about the relationship between industrial growth, industrial exports and the PMI. In June, the value-added output of industrial enterprises above the designated size increased by 6.3% year-on-year, higher than that of May. The volume of industrial exports was stable in June, with the export delivery value of industrial enterprises above the designated size growing faster than in May. This data is based on the relevant indicators released by the NBS.
From this perspective, industrial growth and exports are generally matched. In June, the manufacturing industry’s PMI remained the same as the previous month, a little lower than the 50% threshold. However, in terms of the scale of enterprises, the index of large enterprises remained basically the same, while that of small and medium-sized enterprises registered a slight rise. Generally speaking, there is no big contradiction between the three indicators. In addition, when analyzing the relationship between indicators, we’d better consider the data of more than a month so that we can have a better grasp of the overall trend.
The second question is about the contribution of net exports, namely net exports of goods and services, to economic growth. The contribution rate was 20.7% in the first half of this year, higher than during the same period last year and the first quarter of this year. This is due to two factors. First, the value of total exports minus the value of total imports of goods and services, namely net exports, or trade surplus in goods, showed considerable expansion compared to the same period last year. At the same time, the trade deficit in services became smaller. Thus, the overall trade surplus in goods and services expanded.
To get an accurate and comprehensive picture of how the three drivers, namely consumption, exports and investment, contribute to economic growth, we have to take account of factors beyond the contribution rate. The first is economic structure, such as the sheer proportion of the three drivers in GDP. The recent years have witnessed a continuous rise in the share of domestic demand, and a fall in that of net exports of goods and services. China’s economic growth relies increasingly on domestic demand, especially consumption.
The second is speed, such as the growth of consumption, investment or gross fixed capital formation and net exports of goods and services. Overall, consumption and investment combined, or domestic demand, outpaced net exports during these years. The third is contribution rate, which reflects how much contribution the three drivers respectively make to economic growth.
In short, in order to reach an accurate conclusion about how the three drivers contribute to economic growth, we need to take into consideration not only their contribution rate, but also their own growth and share in the economy. By doing so, we concluded that China’s economic growth indeed relies increasingly on domestic demand, especially consumption. The central government has instructed that more focus be given to boosting the domestic market. Thank you.
