CCTV:
According to your briefing, China's economic growth in the first quarter exceeded expectations. The statistics in the industrial and consumption fields were both higher than expected, and major indexes have rebounded. What's your view on China's economic performance in the first quarter? Thank you.
Mao Shengyong:
Statistics show that China's economic performance was stable in the first quarter. In particular, many indexes in March were higher than expected. People have been increasingly optimistic about the market and the number of positive factors has increased. Since the beginning of the first quarter, the Chinese economy has enjoyed steady performance while gathering momentum. I would like to summarize the situation into three points, which may sound cliché, but contain new information.
My first point of view is that the economic performance stayed within a reasonable range. This was shown by the main economic indexes, such as growth, employment, price and income.
Firstly, in the first quarter, GDP grew by 6.4%, obviously higher than market expectations. The figure was previously expected to be 6.2 percent or 6.3 percent.
Second, regarding employment, the surveyed unemployment rate of urban areas was registered at 5.1%, 5.3% and 5.2% in the first three months respectively. The figure dropped 0.1 percentage point from 5.3% in February to 5.2% in March. In the first quarter, the number of newly employed people in urban areas totaled 3.24 million, fulfilling 29.5% of the annual target. The general situation on employment has been stable.
Third, regarding price, the consumer price index (CPI) continued to rise slightly, up by 1.8% on average in the first three months. The producer price index for industrial products (PPI) continued to rise modestly, up by 0.2% on average in the first three months. In March, the CPI growth rate was a bit higher, up by 2.3% year-on-year, while PPI rose slightly by 0.4% year-on-year. The changes show that demand and supply in the market have been more balanced. While supply was sufficient in quantity and better in quality, prices rose slightly, indicating that market demand had improved.
Fourth, regarding income, in the first quarter, the real increase of personal per capita disposable income was 6.8%, 0.2 percentage points higher than the same period of last year. Taking into account the GDP growth rate of 6.4%, the growth of income outpaced GDP in the first quarter. In addition, the gap between the income of urban and rural residents narrowed. The per capita disposable income of urban residents was 2.53 times that of rural residents, 0.02 less than that of the same period last year.
The main indexes indicated that China's economic performance stayed within a reasonable range. This was not easy.
The second point is that the economic structure has been optimized and upgraded. The structural reform of the supply side has continuously advanced this year. Three hard battles against grave risks, poverty and pollution are yielding results. The economic structure is continually developing in the direction of optimization, adjustment and upgrading.
This can be seen according to the following angles. First, in terms of industrial structure, the service sectors have maintained comparative fast growth. The proportion of added value of the service sectors to GDP continuously increased in the first quarter, hitting 57.3%, up 0.6 percentage point year-over-year, and the rate of increase is higher than that in the same period last year. Second, in terms of the structure of industries, the growth of high-tech industries and strategic emerging industries remains comparatively fast, up 7.8% and 6.7% respectively. Third, the modern service industries have also kept up rapid growth.
Secondly, in terms of the structure of demand, first of all, the foundation for consumption to play a core role or act as a leading power to stimulate demand is comparatively solid. The contribution rate of consumption to economic growth was 65.1% in the first quarter. Among all residents’ consumption expenditure, service consumption accounts for 47.7%, up 1.4 percentage points year-over-year, which means the consumption structure is improving. Second, investment has maintained momentum through a modest rise, and the internal structure of investment is being further optimized. Investment in technical reform, high-tech industries, social fields and some short-slab fields have maintained relatively fast growth, which will add more impetus to future development. Third, the structure of foreign trade is being enhanced. The General Administration of Customs also released relevant data showing that in the first quarter, the share of general import-export trade is 1.3 percentage points higher than that in the same period last year.
Thirdly, in terms of regional structure, the coordination among regional developments has improved. The eastern region continues to play a leading role in innovation-driven upgrades and development. The first-quarter total growth of the added value from high-tech manufacturing in the eastern region was faster than in January and February, and the input in research and development is also increasing continuously. The growth rates of industry and investment in the central and western regions are markedly higher than the national average, showing growing advantage to accepting industries transferred from the east. Although the growth speed of northeast China is a bit lower than the national average, an accelerating trend compared with the same period of last year is evident. The key regional development strategies, such as the Yangtze River Economic Belt, Beijing-Tianjin-Hebei Coordinated Development, and Guangdong-Hong Kong-Macao Greater Bay Area, are all making solid progress.
My next point relates to the notable improvement in market expectations. It is self-evident that the external environment since the second half of last year has been less promising. Based on certain global statistics, growth in international trade and the global economy is slowing, and some leading indicators have also experienced recession to varying extents, which all contribute to lower expectations for global economy. Nevertheless, the confidence and prospects for China's economic growth have steadily improved, which came not without effort, as China owes its stronger market expectations and confidence to the introduction and implementation of a series of policies for reform and opening up. Policies ensuring tax cuts and fee reductions on a larger scale and with greater efforts, which was introduced at this year's NPC & CPPCC sessions, provided a huge boost to the market. Compared with the statistics from February, the PMI in March saw a rise of 1.3 percentage points, while the Business Activity Index for Non-Manufacturing Industries in March also grew by 0.5 percentage point. Additionally, the Consumer Confidence Index was 3.2 percentage points higher than that of the fourth quarter last year.
In addition, some international organizations also raised their expectations of China’s economic growth. For example, the IMF, in its latest report, raised the expectation from 6.2% to 6.3%. Some international investment banks, too, are raising their outlooks on China’s economic growth. Therefore, both Chinese producers and consumers, and foreign organizations have an optimistic outlook on China’s economic growth, and their confidence in Chinese market has increased. Faced with various uncertainties from the external environment and tough challenges posed by domestic reforms, it is not an easy thing to achieve this greatly improved confidence in the market.
However, we should also be aware that at present, the growth of the global economy and of international trade are slowing, and there are still many international uncertainties. Although China's GDP grew by 6.4% in the first quarter of this year, and generally performed better than market expectations, it still declined compared with the same period last year, as well as with last year on the whole, suggesting that the economic downward pressure persists. Therefore, in the next period, we will follow the decisions and arrangements set by the CPC Central Committee and the State Council, and will better implement major policies and measures to ensure the economy operates in an appropriate range, and to march on toward high-quality development. Thank you.
China Business Network:
You have just mentioned that the economic performance figures in March are relatively good, what's the reason behind it? The performance in the first quarter is in line with that of the fourth quarter last year and better than the market expectation. Can you give an analysis of future economic performance?
Mao Shengyong:
Thank you for your question. Last month when I released figures here, people were concerned that the economic performance in the first two months was not so good, but figures in March are now excellent. Some indexes remarkably rebounded and the added value of the industrial enterprises above designated size increased by 8.5%, 3.2 percentage points higher than that of the first two months. Overall investment has picked up and consumption has accelerated slightly. The pickup rate of exports in March exceeded 20% and some indexes rebounded significantly and performed better than expected.
Generally, the improvement of those indexes can be attributed to the following reasons:
First, there are positive effects of the policies. During the fourth quarter of last year, we carried out six principal policies to stabilize the economy and they are now taking effect. At the beginning of this year, we have continued to implement a series of policies in a bid to expand investments and stimulate consumptions. Meanwhile, the Government Work Report issued in this year's Two Sessions has given birth to a slew of tax reduction polices, which will be specified in the near future. The positive signals released from the trade negotiations between China and the United States have also yielded positive results. The combination of those factors has boosted the confidence of businesses.
Second, stimulated by the policies, businesses and markets have higher expectations and additional growing confidence in the market. Early signals of improvement are already visible.
Third, the Spring Festival had an impact on deviating the economy from its normal trajectory. Influenced by the particular earliness of this year's festival, the data in the first two months of this year showed signs of declining but eventually rebounded in March. Therefore, we’d better neglect the impact of the festival factor in specific months and hold a panoramic view of the entire quarter while comparing them with those in the same period last year. Many indexes in the first quarter this year dropped year over year, but they almost all are now equal to the data from the fourth quarter of last year and some of them are even higher.
To your question, there are some industrial indexes for reference. When getting the first glimpse of the data, we truly feel it was beyond our expectations. But it becomes rational when putting into scrutiny. Why? Just like what I have said, we need to take a look at the general factors: first, the factor of policies, which stimulate the positive effects of enterprises; second, the factor of enterprises' expectations, which are growing higher and higher; and third, the lowered value-added tax rate, which is considered highly important. For instance, the rate of value-added tax in manufacturing industries has fallen from 16% to 13% since April 1 of this year. Therefore, to enjoy the tax-rebating policies as much as possible, many enterprises asked for more supplies in order to increase their inventories. At the same time, the suppliers from the upstream industries are stimulated to expand their productive capacities. That can better explain the third factor. Fourth, we still need to take into consideration the factor of the Spring Festival. The economy of the industrial enterprises above designated size grew by 5.3% year-by-year in the first two months this year. But the figure could have been 6.1% had the impact of the festival been ignored. However, the growth of 8.5% in March should also be partly attributed to the festival factor. All in all, the industrial economic growth of 6.5% in the first quarter this year sustained a good momentum. This is the answer to your first question.
For the second question, about whether there's sustainability in the next step. For example, from the perspective of industrial growth, some of the factors just mentioned are short-term factors, some are medium- and long-term factors. But in combination, for example, the basis or favorable conditions for supporting the smooth operation of industry is relatively large or many.
The first favorable factor is, starting from April 1, the policy of lowering the value added tax rate has already been implemented, and the supporting rules and details will come out soon. After May 1, the cut of enterprise contributions to social insurance will also be implemented. A series of policies will be implemented, reducing the burden on enterprises and facilitating enterprises wanting to expand investment and increase production.
The second favorable factor is, based on the current situation, the role of finance to serve the real economy is strengthening, and the prudent monetary policy is flexible and appropriate. We see that market liquidity is reasonably abundant. From this perspective, the financial environment for the development of the real economy has improved slightly.
The third favorable factor is export. Exports increased by 21.3% in March, a significant increase of 21.2 percentage points compared with January to February. This was also affected by the factors just mentioned. Export growth in the first quarter was good. For the next stage, exports are still expected to maintain a certain growth. Judging from the situation we know, including from the survey and the data in early April, we see that exports can still maintain a certain growth. From historical data, we see that the growth rate of industrial enterprises above the designated size and the growth rate of exports are closely linked, and it is also a strong supporting force for the steady growth of the industry.
Therefore, many favorable factors support the steady growth of the industry in the next stage. Of course, we also see that there are many external uncertainties, and the growth rate of profits of industrial enterprises above the designated size has slowed. These are negative factors. Taken together, the growth of industrial enterprises above the designated size is unlikely to be as encouraging as what we've seen in March, but the industry can still maintain a stable and healthy development based on conditions and supports.
Bloomberg:
You said that consumption contributed to a higher economic growth. What role did investment play? Is the situation sustainable? As to the decline in vehicle sales, if the cut in vehicle purchase subsidy in the second quarter affect the sales, will the Chinese government introduce some measures?
Mao Shengyong:
Thank you for your question. The fundamental role of consumption in producing economic growth has been strengthening in recent years. First, in terms of spending, the contribution of demands is in a state of flux. In the first quarter, the three major forces driving economic growth, namely consumption, investment and external demand performed well, to a greater or lesser degree. Consumption maintained a rapid growth, and investment increased at a higher rate. Foreign trade, in both goods and services, also registered a good performance. However, an increase in the contribution of one force means a decrease in the other two. In the first quarter, consumption made the largest contribution making up 65.1% of economic growth, performing as the dominant driving force. In the first quarter of last year, foreign trade played a negative role in promoting economic growth, with the net exports registering a negative contribution rate. In the first quarter of 2019, China’s surplus in trade in goods went up by 75.2% over that of the same period last year, indicating an increase in the contribution of net exports. Actually, the contribution made by the net exports of goods and services grew to 22.8%. In addition, despite higher growth of investment and rising capital formation, the contribution of gross capital formation stood at 12.1% – 28.3 percentage points lower than that of the same period last year. Although the respective contribution of the three major demands has changed, consumption, the proportion of which was above 60%, was still the largest contributor in absolute terms.
Second, the contribution of consumption has hovered around 60% in recent years, but has exceeded 70% or even approaching 80% in some individual quarters. This is a testament to the strengthening fundamental role of consumption in promoting economic growth.
Meanwhile, we need to be aware that the potential of consumption has yet to be maximized. China's consumption environment needs further improvement. Some incidents in recent years have added a new urgency to strengthen protection of consumers' rights and interests. Besides, consumption upgrades call for more supply of quality products and services. Therefore, there's still much room for China to unleash its consumer market potential.
Regarding your second question, the fall in car sales has drawn great public attention. Recent statistics show that there was a moderate slowdown in car production and sales. Domestically speaking, it resulted from the booming development of the Chinese car industry in the past 10 years. Car production and sales grew very quickly during that period. But the number of car owners among residents has increased continuously until today. This is the basic situation. The production and sales of cars are likely to enter a short period of adjustment. In some major developed countries, car production and sales have slowed down as well. This is my first point of view.
Second, the statistics in March show that although car production has continued to drop, the speed of the decline has slowed down. The value added of the industry actually saw a positive growth. This means that the upgrading of the industry is accelerating. The situation was the same regarding sales. Therefore, after a period of adjustment, the rate of decline of production and sales will decrease further.
Third, when analyzing China's car market, we should focus on new cars. Approximately 28 million new cars were sold in 2018. However, we should also pay attention to used cars, because that market has been expanding. Last year, nearly 14 million used cars were sold, accounting for half of the number of new cars sold. The growth rate exceeded 10%. In the first quarter, the transaction of used cars increased both in terms of the number of cars sold and in terms of their transaction value. Therefore, we should consider both new cars and used cars when analyzing China's car market. From what we can see, the used car markets in developed countries are all vibrant. Thank you.
China Global Television Network (CGTN):
We know that the Sino-U.S. trade frictions have persisted for one year since March 2018. I'd like to ask how the trade friction has affected the economic data in the first quarter. Could you please give an analysis on it? Thank you.
Mao Shengyong:
Thank you for your question. Since the second half of 2016, the world economy has recovered following seven to eight years of adjustment. In 2017, the overall recovery momentum of the world economy was relatively strong, but since 2018, it has been slowing down. Later, we find that global economic growth is slowing down and international trade expansion is also slowing down. What is the reason? I think a very important reason is that the rise of international trade protectionism started to intensify in 2018, indicating that protectionism is not conducive to economic growth or world trade growth, and is harmful to the world economy.
As for the issue of Sino-U.S. economic and trade frictions you have asked, the Sino-U.S. economic and trade consultations have been carried out for nine rounds, and positive signals have been continuously released, indicating that the negotiations have made substantial progress. We have seen that every time the Sino-U.S. economic and trade consultations release a positive signal, the international capital market and international companies respond positively, and the market shows a very active state. To strengthen economic and trade exchanges and maintain normal mutually beneficial economic and trade cooperation is not only beneficial to both sides, but also conducive to the development of the world economy and the recovery of international trade. Thank you.
Beijing Business Today:
According to the statistics regarding housing prices in March, the number of cities with increasing sales prices month-on-month of both newly-constructed and second-hand residential buildings is rising. What's your response to this situation? Meanwhile, the growth of the total investment in real estate development in the first quarter is notably faster than that of 2018 and that of the same period last year. What kind of trend does it imply in the real estate market? How much does it contribute to the fix-asset investment? Thank you.
Mao Yongsheng:
Thank you for your question. There are two issues, the first is about housing prices and the second is about real estate development investment. Judging from the house price data of 70 large and medium-sized cities nationwide in March released yesterday, the growth of house prices in first and second tier cities is either slowing or lower year-on-year. In general, house prices in China have overall stability, as the growth in the majority of cities has been subdued and even dropped in some cities. Stability is still the general trend of housing prices. Nevertheless, differences surely exist due to imbalanced regional development, in which growth has been less synchronized.
Regarding the second issue, since last year, real estate development investment has been maintained at around 10%. Over the first quarter of this year, the growth of real estate investment has accelerated. This is due to two reasons: the first is the stabilization of housing prices; and the second is the rise of floor space under construction. Regarding your question about the impact of accelerated investment in real estate: accelerated investment and enlarged floor space now under construction can help to relieve the pressure of rising house prices, increasing the supply of real estate, and better achieve the balance between supply and demand in the market.
From the perspective of the real estate market, the public's expectations are relatively stable. The market positioning of "staying and not speculating" has become clearer. The house is the property of residence. and the property of consumption. We need to improve the quality of demand and the development of new urbanization. It should be clarified that we need to limit home purchases to rein in speculative and investment-driven housing demand. We also need to reinforce the regulation and governance of local government to adapt the policy based on practical situations and enhance management ability. On the whole, the real estate market is expected to be relatively stable, the land price is generally stable, and the house price operation is relatively stable. Thank you.
China News Agency:
We have seen that the GDP growth rate in the first quarter of this year remained flat with little fluctuation compared with that in the fourth quarter of last year. Some people questioned the stability of China's economic growth over the years, during which the data of other countries fluctuated. What do you think of it? Thank you.
Mao Shengyong:
We have learned about what you mentioned through various channels, and I would like to respond to it. We know that China's economy has shifted from high speed growth in the past to high-quality development. In this new phase, the economic growth has slowed down from rapid speed in the past to medium-to-high speed growth. However, while the growth rate is decreasing, the economic operation is becoming more stable. In fact, it reflects the change of the economic development phases and not the smoothing out of economic growth fluctuations. The reasons are as follows:
First, in terms of total volume, China's economic aggregate is growing increasingly larger, with total economic output exceeding 90 trillion yuan in 2018. The increasing amount of money means that economic growth may slow down on the one hand, but it also means that economic growth is not prone to rapid fluctuations and will show greater stability. The larger the economic aggregate is, the less likely it is to fluctuate. But as the economic aggregate becomes larger, every percentage point of growth can bring about incremental economic growth.
Second, from the perspective of industrial structure, the proportion of the service industry's value added in GDP has exceeded that of the secondary industry and become the largest industry since 2012. The service industry has maintained rapid growth ever since, and the proportion of its value added in GDP has continued to increase, sustaining an increasing contribution to overall economic growth. In the first quarter of this year, the contribution rate was 61.3%. In terms of the demand structure, the contribution of consumption to economic growth has been constantly consolidated. In the first quarter, the contribution rate of final consumption expenditure was 65.1%. In terms of production and demand, it is the service industry and consumption that contribute to production and demand respectively, and both of them feature fast growth. We know that consumption and the service industry also both have the very important feature of relatively small volatility, allowing these two leading forces to lead to more stable GDP growth.
Third, from the policy point of view, the CPC Central Committee and the State Council have continuously innovated in macroeconomic regulation and control, and on the basis of strengthening the range control, directional regulation, precise regulation, and camera regulation have been continuously strengthened, which have better responded to the downward pressure on the domestic economy. These efforts have kept the economy running smoothly in an appropriate range, which shows the effects of our policies.
Fourth, when developed economies, including the U.S., Japan and European countries release their quarterly GDP growth, sometimes they release annualized rates first, and then year-on-year rates. Annualized rates will amplify seasonality, both positive and negative, thus magnifying the fluctuation of statistics. For example, during the four quarters of 2018, the first quarter ranked the highest at 6.8%, while the last quarter ranked the lowest at 6.4%. The range of annual economic growth is 0.4 percentage point. Whereas the statistics of the U.S. in 2018 are 3.0% and 2.6% respectively, and the corresponding range of growth is also 0.4 percentage point, which also seems to be fairly stable. However, when based on the perspective of annualized rate, in which the highest growth of the U.S. is 4.2% and lowest is 2.2%, the result is a 2-percentage-point range of discrepancy. This explains the reason why sometimes the annualized rate published by developed countries seem to indicate significant fluctuations while China’s numbers show more stability. This is because the statistics published by China refers to the year-on-year growth and those of foreign countries are based on an annualized rate. If we review the year-on-year growth for both, the statistics released by China and foreign countries remain relatively stable.
Over the past years, people may neglect that the National Bureau of Statistics has also released the quarter-over-quarter growth rate apart from year-over-year rates when publishing the quarterly GDP. If you have interest, you can make some derivation based on the quarter-over-quarter speed of growth and see its annualized rate. Based on our rough calculation, we note that if the annualized rate is determined on the basis of the quarter-over-quarter growth rate, its fluctuation rate is higher than the year-over-year growth rate.
Generally, Chinese economic performance is stable now, which is a manifestation of the objective rules of China’s economic development in the current phase, and is also in line with the international rules of development. It also showcases the effect of policy tuning, rather than deliberately concealing economic fluctuations through statistics.
Reuters:
According to the statistics you just released, the economic growth in the first quarter was better than expected, and previous policies are paying off intially. Do you think there will be fewer policies to stabilize economic growth in the next stage, especially monetary policies, such as cutting interest rates and required reserve ratios?
Mao Shengyong:
First, in the first quarter, economic performance was quite stable and better than expected. Second, for the next stage, the positive factors for economic growth are accumulating and the market outlook is improving. For the next step, a lot of policies will be implemented and effective, cementing the foundation for steady economic performance. Third, we should notice that the downward economic pressure still exists. There are many uncertainties from the external environment, and the growth of the global economy and international trade is slowing down. Domestically, we also have many structural issues. The growth rate of 6.4% is lower than the same period of last year and the whole year. All of these show that we face pressures in terms of economic performance. Particularly, the real economy was faced with issues such as rising costs and a decline in profit-making.
We have rolled out many polices, and most importantly, our departments and local authorities need to implement the major polices made by the Central Committee of CPC and State Council in both letter and spirit, and give full play to these policies, so as to facilitate steady and healthy economic growth and a higher quality for Chinese economy. Thank you.
ShouXiaoli:
Thank you, Mr. Mao. Thank you, all the journalists. That is the end of today's press conference. Goodbye.
