CCTV:
According to your introduction just now, China's economy has still maintained strong growth in the second quarter. How has China managed to maintain this growth? What's your view of the national economy's performance over the past half year? Thanks!
Xing Zhihong:
Thank you for your questions. During the past half year, China's economy has had stable progress and a positive trend. There were many positive changes in the economic area, I can say that the good elements have further increased to sustain the economy's intermediate- and high-speed growth.
To summarize the characteristics of the economy's operation in the past half year, there are two points: one, stability has been reinforced; and the good trend has become more evident.
As I say, the stable situation has become more reinforced and it was reflected in the fact that the economy keeps operating in a reasonable range. First, economic growth was stable in the past half year, China's economy maintained intermediate and high speed growth and GDP grew by 6.9 percent year-on-year, which is in line with the first quarter. The economic growth rate has kept within a range of 6.7 percent and 6.9 percent in eight consecutive quarters.
Second, the employment situation maintained a positive trend. In the past half year, urban and township areas saw new employment of 7.35 million people, which was 180,000 more on a year-on-year basis, and this completed 66.8 percent of the annual goal. The urban and township unemployment rate generally went down. According to statistics from the National Bureau of Statistics of China, the survey shows that the national urban unemployment rate was kept under 5 percent in two consecutive months. In 31 big cities, the survey shows that their urban unemployment rate was kept under 5 percent in four consecutive months. There is more labor from rural areas. Just now I have mentioned that by the end of the second quarter, the number of migrant workers from rural areas working in urban areas has increased 3.64 million people, a 2.1 percent growth year-on-year.
Third, the price of commodities was generally stable. In the past half year, the national consumer price increased by 1.4 percent, which was basically in line with the first quarter; minus food and energy, the core CPI was basically stable, and the core CPI increased by 2.1 percent on a year-on-year basis.
Fourth, the international balance of payments continued to improve. The trade in goods continued its surplus. In the past half year, after balancing exports and imports of the trade in goods, we realized a 1.28 trillion yuan surplus. The RMB slightly appreciated, and foreign exchange reserves continued to rise. By the end of June, RMB's middle rate is 1 US dollar against 6.77 RMB yuan, which means an 1.84 percent appreciation for RMB compared with the rate at the end of March. China's forex reserves reached US$3.0568 trillion, a consecutive increase for 5 months.
So generally looking at the indexes of the four aspects in the macro-economy, we can see China's economy in the past half year shows stable growth, good employment, stable prices of commodities and an improved international balance of payment. The economic growth stability clearly was reinforced.
Regarding the positive trend becoming more evident, it is shown in three aspects: First, the structure was optimized by reform. The supply-side structural reform continues to have deep progress, which pushes forward the production and demand structure to be further optimized. From this year on, the distinction of the service industry dominating economic growth became clearer. In the past half year, the growth rate of the service industry was 1.3 percent faster than the secondary industry, while the service industry accounted for 54.1 percent of the whole economy, which was 14 percentage points higher than the secondary industry's percentage.
The manufacturing industry was progressing to the middle and high end. The high-tech manufacturing industry and equipment manufacturing industry grew 13.1 percent and 11.5 percent respectively on a year-on-year basis, which is 6.2 and 4.6 percentage points faster respectively than the overall industry above designated size. They accounted for over 12.2 percent and 32.2 percent of the whole industry above designated size respectively. Consumption has speeded up transformation and upgrading; high-tech industry investment has increased rapidly, while the consuming and needs structures are also adjusting and optimizing.
Second, the dynamics was strengthened in the transformation. The deep pushing forward of reforms to delegate power, streamline administrative procedures and optimize government services will optimize the environment of entrepreneurship and innovation. From this year on, many market entities surfaced and developed. From January to May, the number of newly registered enterprises increased by 14.7 percent on a year-on-year basis, and there are an average of 15,600 new enterprises registering on a daily basis.
The development of new entities and new technologies efficiently prompted the growth of new industries, new business formats and new patterns – resulting in new dynamics for economic development. In the past half year, the national online retail sales of physical products increased by 28.6 percent year-on-year, which was 18.2 percentage points faster than the nation's consumer goods retail sales. This took over 13.8 percent of total consumer goods retail volume, which was 2.2 percentage points higher year-on-year. Strategic new industries grew 10.8 percent year-on-year, which was 3.9 percent faster than the industry above designated size. The new force in the economy is constantly growing and strengthening.
Third, the quality is improving in transformation. While the economy keeps intermediate- and high-speed growth, quality has further improved. This year, enterprises' benefits clearly improved. From January to May, the enterprises above designated size saw their profits grow by 22.7 percent year-on-year. The main business revenue of the enterprises above designated size had profit margins of 6.05 percent, which is 0.45 percentage points higher year-on-year. The business profit of enterprises above designated size also maintained double-digit growth, and the consumer income's growth rate was faster than economic growth. In the past half year, personal per capita disposable income increased by 7.3 percent, 0.8 percentage points higher than the same period last year, and 0.4 percentage points higher than the economic growth rate in the same period of this year.
In fiscal terms, although tax reductions and fee cuts were large for enterprises, due to stable and positive economic growth, the tax base continues to expand. Therefore in the past half year, the public budget revenue increased by 9.8 percent year-on-year, and the growth rate was 2.7 percentage points higher year-on-year.
To summarize all of the above, in the past half year, China's economy was stable and positive, this trend became clearer and laid a solid foundation for China to complete its projected main economic targets.
Phoenix Satellite Television:
The data of the second quarter, including those in June, demonstrate a very good performance. However, we have also noted that, based on the analysis of different economists, there are different voices being heard. Some believe the economy is advancing in a new upward spiral having hit bottom; meanwhile, there is another view that pressures are lurking in the second half of this year. So, could you please tell us your view, especially, the impact of the retarded control over the real estate investment on the economy in the latter part of this year.
Xing Zhihong:
Your question generally seems to be about the economic tendency in the next stage. Amid deepened supply-side reform and implementation of the innovation-driven development strategy, so to speak, there will be more positive factors for the economy in the second half this year and the good momentum will be consolidated and expanded.
In my view, there are several points to be addressed here. First, the development of the real economy has sustained good momentum, consolidating the foundations of economic development.
The negative growth of the producer-price index (PPI), having lasting for 54 consecutive months, ended last September. Entrepreneurs saw their businesses and development prospects obviously improved, and industrial production has remained relatively stable since the deflationary impact ran out of steam. Industrial Enterprises Above Designated Size have generally sustained a growth of more than six percent since March last year, while, industry added value this year has achieved higher growth rate. Stabilized industrial productivity, improved efficiency and the promising forecasts will lure increasing investment to the sector. In the first half of this year, investment in the manufacturing industry grew by 5.5 percent, up 2.2 percentage point year-on-year. Investment for the purpose of technical upgrading increased by 11.8 percent, accounting for 45.6 percent of the total industrial investment, which would lay a solid bedrock for sustainable growth of the industry. The development of the tertiary industry also maintained a good momentum as the Service Industry Index has been able to retain a growth of eight percent since the beginning of this year. The interaction between the secondary and tertiary sectors has fostered growth of the producer service sector and the growth of IT-, commerce- and logistics-oriented service sectors have kept accelerating.
Second, the stabile growth of demand has expanded and the driving force of economic growth has been continuously enhanced. Domestic demand, a fundamental strategic target towards which we have made ceaseless efforts, has essentially fostered the internal stimulus of economic growth, a balanced structure between supply and domestic demand, mutual stimulation between updated consumption and efficient investment, andcoordinated development between urban and rural areas--all of which highlighted the role of domestic demand in economic growth. Since the beginning of this year, consumption has made stable progress, as the Final Consumption of Expenditure contributed 63.4 percent to overalleconomicgrowth, followed byproactive investments that hold key to the increase of GDP. At the same time, overseas demand, which rose by 15 percent in the first half this year, has interacted well with the domestic demand for the improvement of the economic driving force.
Third, small and micro businesses have been more dynamic in theireconomic growth. The prosperity index among 40,000 such enterprises in a survey conducted by the National Bureau of Statistics reached 96.5 percent in the second quarter, 3.4 percentage points higher than the first quarter and the highest in the past two years. The dynamic growth of small/micro businesses is no coincidence, and the large scale of such businesses formsan extensive force for economic development and construction. According to the survey, 75.4 percent of small/micro enterprises have facilities being used at or above the normal criterion, while, 72.7 percent of respondents disclosed that the amount of their orders has also stayed at or above the normal level, signaling consecutive growth for six straight quarters. The Purchase Management Index (PMI) indicated that small and micro businesses had maintained their momentum of expansion in two consecutive months up to June. The vitality of those businesseshas reflected the inclusiveness and extensiveness of the country's economic growth.
Fourth, the market forecast is turning positive and the confidence level in the national economy keeps rising. The PMI of the manufacturing sector reached 51.7 percent in June, up 0.5 percentage points up from a month before and maintaining an interval of expansion for 11 consecutive months. The PMI of the non-manufacturing sector in June reached 54.9 percent, rising 0.4 percentage points from a month earlier and keeping the prosperity indices above 54 percent for nine straight months. At the same time, the Consumer Confidence Index reached 113.3 percent in June, considered a comparatively high rate in the past few years. We have also noted that the International Monetary Fund (IMF) and the Organization of Economic Cooperation and Development (OECD) have increased their forecasts ofChina's economic growth.
Based on the statistics, the good momentum of the national economy will further be maintained and explored amid stable growth. Thank you.
Reuters:
Has the recently revised Chinese System of National Accounts (SNA) affected the growth rate in the second quarter and the first half of this year? What was the the contribution of gross capital formation (GCF) as well as imports and exports to economic growth?
Xing Zhihong:
Thank you for your attention to the statistical work. Recently, the State Council has officially approved NBS's proposal to implement the Chinese System of National Accounts 2016 (2016 Chinese SNA). Next, NBS will phase in the system, but the work has not yet been fully started, so it has no impact on the calculation of GDP and its growth rate. In addition, I would like to take this opportunity to inform you about the "2016 Chinese SNA."
SNA is an international standard system of national accounts which helps build up a comprehensive, scientific and systematic picture of economic performance. In the 1990s, China constructed its own national accounting system based on SNA. Over the years, Chinese SNA, in its various released versions, has formed the basis for a real and accurate picture of China's GDP, economic structure and growth rate. In 2009, the U.N. and other four international organizations published the latest version of SNA—"2008 SNA," which has been adopted by many countries.
To promote international comparability and compile national accounts in a more accurate and scientific way, NBS conducted an in-depth study on the"2008 SNA" and constructed the "2016 Chinese SNA" with China's realities taken into consideration. In "2016 Chinese SNA," there are new concepts, revised indexes, expanded accounting areas, more detailed standards and refined accounting methods.
However, to adapt the massive system for our use, we have to take progressive steps. We have adjusted some items. For example, we adjusted the method of accounting for R&D activities last year, and improved it at the local level earlier this year. But there are still many items to be adjusted. In brief, NBS will make continuous efforts to implement the approval of the State Council and make the national accounts more accurate.
As to the contribution of the three major demands of economic growth in the first half of this year, household final consumption expenditure (HFCE) contributed 63.4%; GCF 32.7%; and net exports of goods and services 3.9%. Thank you.
Nihon Keizai Shimbun (Nikkei):
I would like to know the possible impact of the current interest rate rise on both financial market and for mortgage loans in the second half year. Thanks.
Xing Zhihong:
This is related to the currency market. China's monetary policy, as made clear both at this year's Central Economic Work Conference and the Report on the Work of the Government (2017), is to maintain policy continuity and stability, and continue to implement a proactive fiscal policy and prudent monetary policy. China's monetary policy will remain stable and neutral; that is, it should provide necessary liquidity support for the economy to float within a reasonable range, and create a favorable financial environment for supply-side structural reform. At the same time, monetary policy should not be too loose, as this might lead to a leveraging effect, amplifying asset bubbles and thus bringing risks to the Chinese economy.
For your question concerning the current interest rate and money supply, I noticed a few days ago that a top officer from the People's Bank of China stated China's M2 figure had expanded 9.4 percent from a year earlier as of the end of June, slowing down a little. From the introduction of the People's Bank of China, this slower M2 expansion was mainly the result of financial deleveraging. This was especially evident in a slower pace of interbank lending, including off-balance sheet activities, where the total outstanding yuan-denominated loans at the end of June had risen 12.9 percent year-on-year,which is regarded as moderate growth. The central bank also diversified liquidity types through a variety of monetary policy tools. Such arrangements helped maintain market stability and provides important support for the real economy. The reform of China's financial system is speeding up. We will continue to improve and strengthen the transmission mechanism of monetary policy to stabilize market interest rate and ensure the stable and healthy development of the Chinese economy. Thank you.
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.
