Read in Chinese

Speakers:

Yao Jingyuan, special researcher of the Counsellors' Office of the State Council

Xu Xianchun, professor at the School of Economics and Management, Tsinghua University, and director of Tsinghua China Data Center

Chairperson:

Xing Huina, deputy director general of the Press Bureau of the State Council Information Office (SCIO) and spokesperson of the SCIO

Date:

Oct. 18, 2021

Xing Huina:

Friends from the media, good afternoon. Welcome to this briefing held by the State Council Information Office (SCIO). This morning, we held a press conference to present China's economic data from the first three quarters of 2021. The briefing this afternoon will further analyze the economic performance in the first three quarters of the year. At this briefing, we are joined by two experts: Mr. Yao Jingyuan, special researcher of the Counsellors' Office of the State Council; and Mr. Xu Xianchun, professor at the School of Economics and Management, Tsinghua University, and director of Tsinghua China Data Center. They will start by giving you their interpretations of the economic data and then take your questions.

Next, I'll give the floor to Mr. Yao Jingyuan.

Yao Jingyuan:

According to the principles of economics, a country's overall economic situation can be analyzed from four indicators: the growth of gross domestic product (GDP), job creation, consumer prices, and balance of payments.

The first indicator is GDP growth. China's GDP registered a year-on-year increase of 9.8% in the first three quarters of the year. As we know, according to the Government Work Report delivered by Premier Li Keqiang in March, China aimed to expand its economy by over 6% in 2021. The latest estimate by the International Monetary Fund (IMF) also said that China's economy will grow by 8%. I estimate that annual growth in 2021 will reach about 8%. Therefore, the GDP growth rate is within our expectations.

The second indicator is job creation. In the first three quarters of the year, China added 10.45 million new urban jobs in the first three quarters, achieving 95% of the annual target. The surveyed unemployment rate in the first three quarters stood at 5.2%, which was 0.5 percentage point lower than the same period last year, and also lower than the 5.5% target for this year put forward by Premier Li Keqiang in the Government Work Report this March. The employment of migrant workers was also very good. Some 3.51 million new migrant worker jobs were added in the first nine months of the year, close to the level in 2019.

The third indicator is consumer prices. Plenty of people were worried about inflation at the end of 2020 and the beginning of this year. Yet the actual situation is that, in the first nine months of 2021, the consumer price index (CPI) went up by 0.6% year on year. Compared with the 3% target set at the beginning of this year, China's consumer prices generally remained at a low level and stable.

The fourth indicator is balance of payments. Many experts and scholars did not expect that China's foreign trade could sustain such good growth momentum. In the first three quarters of the year, the total value of imports and exports was 28.33 trillion yuan, which is a comparatively high level historically speaking. Specifically, exports increased by 22.7% year on year, and imports went up by 22.6%, achieving a basic equilibrium. China's actual use of foreign capital amounted to 758 billion yuan in the first eight months of the year, up more than 20% year on year.

Based on these four indicators, it is fair to say that China's economy has remained within the set growth range. In addition, against the backdrop of the pandemic and its unprecedented fallout, China's economy is currently recovering. Of course, there are some things worth noting seen from the economic data in the first half and third quarter of 2021. For example, there has been a downward movement in the economy from the second to the third quarter, which we will discuss later.

I'll stop here for now. My analysis aims to offer you a method to interpret China's economy, which is to analyze it based on these four indicators. These four major indicators show that China's economy is currently in a sound stage of recovery. Thank you.

Xing Huina:

Thank you, Mr. Yao. Next, Mr. Xu Xianchun will have the floor.

Xu Xianchun:

Thank you, Ms. Xing. Friends from the media, good afternoon! 

Mr. Yao just elaborated on the economic performance of the first three quarters from the perspective of four major macro indicators. I will talk about characteristics of the economic growth of the first three quarters from the following three perspectives.

First, I will talk about three characteristics from the perspective of production. First, the year-on-year growth rate dropped quarter-by-quarter, but the average two-year growth rate remained relatively stable, and the economic growth of the first three quarters remained fast, which has laid a good foundation for achieving the year's target. According to the statistics released by the National Bureau of Statistics this morning, GDP of the first quarter increased by 18.3% year-on-year, by 7.9% in the second quarter, and by 4.9% in the third quarter. This indicates that the year-on-year growth rate has declined significantly. But in terms of the average two-year growth rates, namely 5% in the first quarter, 5.5% in the second quarter, and 4.9% in the third quarter, the trend remained relatively stable, with only a 0.6 percentage point gap between the highest and lowest. In addition, the GDP growth rate of 9.8% in the first three quarters was high. From my point of view as an expert, I can predict that the GDP growth of 9.8% is a decisive factor for achieving the year's target of about 7%, so the growth of the first nine months has laid a foundation for achieving the year's target. Second, the added value of the secondary industry was the fastest-growing area, which played a significant role in supporting economic growth. The added value of the secondary industry saw an increase of 10.6% year-on-year in the first three quarters, the fastest rate among the three industries. Third, the service sector made the biggest contribution to economic growth, and was the major driving force of economic growth of the first three quarters. In the first nine months, the added value of the service sector accounted for 54.8% of GDP, and the contribution of the sector to economic growth reached 54.2%, up 1.2 percentage points compared with the first half of the year. 

Second, I will also talk about three characteristics from the perspective of demand. First, consumption has played a leading role in driving economic growth. In the first nine months, the contribution of consumption to economic growth reached 64.8%, up 3.1 percentage points compared with the first half of the year. Second, the role of investment in driving economic growth weakened. In the first nine months, the contribution of investment to economic growth reached 15.6%, down 3.6 percentage points compared with the first half of the year. Third, net export demand showed a good momentum and played an important role in driving economic growth. In the first nine months, the contribution of net exports to economic growth reached 19.5%, up 0.4 percentage point compared with the first half of the year.

Third, new economic forms and new driving forces continued to grow fast. This provided important support for economic growth. The highlights of their robust growth are as follows. First, the high-tech manufacturing sector continued to grow fast. The value added of high-tech manufacturing went up by 20.1% year-on-year, with an average two-year growth of 12.8%, 8.3 percentage points and 6.4 percentage points higher respectively than that of large industrial enterprises as a whole. Second, the high-tech service sector continued to see fast growth. The added value of information transmission, software and information technology services increased by 19.3%, with an average two-year growth of 17.6%, 9.8 percentage points and 12.7 percentage points higher respectively than that of the service sector. Third, investment in the high-tech industries continued to grow fast. The investment in high-tech industries grew by 18.7% year-on-year, with an average two-year growth of 13.8%, 11.4 percentage points and 10 percentage points higher respectively than that of investment in fixed assets (excluding rural households). 

I have summarized the characteristics of economic growth from the above-mentioned three perspectives. Thank you.

Xing Huina:

Thank you. Now the floor is open to questions, please identify your media outlet before raising questions.

CCTV:

Major economic indicators in the third quarter slowed down significantly compared with those in the first half of the year. Does this mean that China's economic recovery trend has changed, and economic momentum has weakened? Just now, you mentioned that the IMF has lowered China's economic growth forecast for the year. The current situation worldwide is grave. How do you view the pressure on China's economic growth in the fourth quarter? Thank you.

Yao Jingyuan:

China's economic growth in the third quarter slowed from that in the second quarter of the year. First, we should see that it's not only the case for China. The global economic growth and recovery weakened on the whole. That's why the IMF lowered China's growth rate from 8.1% to 8%, and cut the world's growth rate by a 0.1% from 5% to 4.9%. So, the economic slowdown in the third quarter is a universal phenomenon around the world.

Here I'd like to focus on China. Why did China's economy slow down? First, it is a result of rising commodity prices on international markets. As we know, due to the supply and demand mismatch as a result of the pandemic, and excess liquidity, the prices of raw materials including oil, natural gas, non-ferrous metals, ferrous metals and coal have risen sharply on the international markets this year. China is the biggest importer and exporter of commodities in the world, and the rise in the prices of raw material commodities is bound to be transmitted to China through imports. This is the main international impact on China's economy.

Second, it is a result of China's own situation at the current stage. We are getting a clearer picture of the reasons leading to the current downtrend, such as the epidemic and severe floods. As we know, several places in China reported sporadic cases, including major economic provinces like Guangdong and Jiangsu. The greater the impact on these provinces, the more the Chinese economy is affected. There are also impacts from floods. Henan is also a major economic province, and its economy was hit hard by unprecedented floods. The recent floods in Shanxi province forced 60 local coalmines to stop production, and the coal output dropped sharply. These are periodic factors. Moreover, if more detailed analysis is made, you will find that the current downtrend is not resulted from the lack of an inherent impetus driving growth. There is much room for Chinese economic growth. Someone asked me today if the downward trend could be changed. My answer is in the affirmative. We can adopt a series of policy measures to resolve these issues for the current stage. Take the coal supply shortage problem as an example. Coal prices rose due to the decline in coal production, which in turn led to losses in power generation, followed by decrease in power supply. Hence, power rationing happened in some provinces. Can the coal issue be solved? We will resume the production of coal mines affected by floods as soon as possible. A total of 72 coal companies in Inner Mongolia have restarted production. We will also increase coal imports. Chinese Premier Li Keqiang recently talked to Mongolian Prime Minister via video link to further promote the coal trading between the two countries. China tops the world with an installed capacity of power generation of 2,200 gigawatts. Thus, the coal shortage is a short-term problem and we can solve it.

We need to give more consideration to these short-term factors for the slowdown of China's economic growth in the third quarter from the second quarter. These short-term factors of the current period, overlapped with China's structural and periodic problems, made the issue more complicated. Therefore, in order to deal with the temporary problems, we need to step up efforts in structural reform to optimize the economic structure, and make counter-cyclical adjustment. In brief, China's economy still sustains a good inherent impetus, and we are able to reverse the slowdown.

Xu Xianchun:

In the third quarter, there were multiple factors that contributed to the declining economic growth rate, including incidental factors and structural factors. These factors were superimposed on each other, so it made some people feel that the downward pressure on the economy is relatively high. However, we should distinguish between incidental factors and structural factors. Incidental factors, such as coal shortages and floods, are relatively easy to resolve.

China's economic development is very resilient, because we have a huge market and relatively strong production capacity. Given the declining growth rate in the third quarter, what sort of economic growth should we expect in the fourth quarter? I think we could analyze this from two sides. On the one hand, pressure on the economy exists. First, in terms of the base number, last year's economic growth went from low to high. GDP fell by 6.8% in the first quarter, but grew up by 3.2% in the second quarter, 4.9% in the third quarter, and 6.5% in the fourth quarter. The growth rate picked up quarter by quarter, and the GDP growth rate in the fourth quarter was relatively high. I think the 6.5% growth rate has already exceeded the current potential growth rate, which will put pressure on economic growth in the fourth quarter of this year. Besides, some downward factors, such as investment, and specifically infrastructure investment, may slow down. On the other hand, there are also many supporting factors. For example, when it comes to consumption, the national per capita consumption expenditure in the first three quarters actually increased by 15.1%, and the average actual growth over two years was 3.7%. Among them, the two-year average growth rate rebounded 0.5 percentage point from the first half of the year. At the same time, employment is generally stable, and the growth of residents' income is also relatively stable. Among three major economic entities, residents see a relatively stable growth in income. The prevention and control of COVID-19 are stable. Residents' consumption capacity and willingness to spend money are also expected to continue to pick up.

On July 30, the Political Bureau of the CPC Central Committee held a meeting and pointed out that fiscal policy will play a major role in stabilizing growth. The key driver will be the major projects listed in the 14th Five-Year Plan. There are still 1 trillion yuan of special bonds to be issued in the fourth quarter, which may support infrastructure investment to some extent. The central bank requires monetary policy to remain stable, maintain reasonable and sufficient liquidity, and guide the reasonable growth of loans in the second half of the year. It's clear that the monetary policy will remain stable and moderately relaxed, which will promote the development of the real economy. Manufacturing investment may also pick up further. From the import and export perspective, China's favorable conditions, such as a complete industrial system and satisfactory epidemic prevention and control, are still attracting foreign importers. Net export demand in the fourth quarter could still be a key driver for economic growth.

Generally speaking, despite the downward pressure, the economy is still able to maintain a relatively stable growth in the fourth quarter.

ThePaper.cn:

According to data from the survey on unemployment rates and migrant workers, employment remained stable in the third quarter, but the economic situation has slowed down. What do you think of the inconsistency between the two? In the background of increasing pressure on economic growth, will the employment market face more challenges? Thank you.

Yao Jingyuan:

Just now, we talked about employment in China. In the first three quarters, new urban jobs completed 95% of the annual target. The surveyed unemployment rate was 5.2%, which fell within the expected target of 5.5%. In the past, we calculated unemployment rate on the basis of registered unemployment rate. That means if you are unemployed and go to the relevant government department to get registered, you will be included in the unemployment calculation. But if someone is unemployed and fails to register, is the calculation going to be accurate? Now the National Bureau of Statistics conducts labor force surveys to estimate the nationwide unemployment rate in cities and towns in accordance with international standards and criteria. The first of the criteria is that an individual doesn't have a job during the survey. The second is whether a person has the ability to work. The third and the most important is whether a person is actively seeking a job but fails to get one. These are the international standards for the unemployed population, and the survey conducted on this basis must be scientific and credible. The surveyed unemployment rates show that employment in the first three quarters was basically stable, and unemployment rate in September actually fell. You just asked why employment can be strong when the economy has slowed down.

First, I wonder if you noticed that according to the basic principles of macroeconomics, macro regulation comprises monetary policy and fiscal policy, however, in China, it also includes pro-employment policy. China's macro regulation actually consists of three policies. The Central Committee of the Communist Party of China (CPC) and the State Council have emphasized many times that employment is the foundation of people's livelihood and economic work should focus on improving people's livelihood and boosting employment. We have adopted a number of measures to stabilize employment and encourage enterprises to increase jobs. The pro-employment policy plays an active role. 

Second, returning to what I was saying earlier, the economic downturn does not mean that the endogenous power of China's economy is insufficient. China's endogenous power is still strong. Enterprises realize this and thought it was temporary, short-term and accidental. They firmly believe in the endogenous power of China's economy. In accordance with national policies, they have made efforts to stabilize employment. We have achieved a good effect because we stabilized people's expectations for economic growth.

China News Service:

My question is about PPI. Since this year, global commodity prices have risen overly quick. China's PPI set a new record high in September. In recent years, we have discovered a trend of the Purchasing Price Index of Raw Material (PPIRM) and the PPI being seriously inverted. What is the reason behind this? What do you think the impact of this will be on the economy? Thank you.

Yao Jingyuan:

As I mentioned earlier, the prices of bulk raw materials are rising. You mentioned that the PPI in September was up by 10.7%. What does this mean? It seemed very serious as it was a record high since 1995. I have explained that this is because commodity prices are rising worldwide. That is the most fundamental reason. China is a big importer and exporter, so it is bound to be transmitted to China. The industries seeing rising PPI are mainly upstream industries, such as coal, oil, natural gas, non-ferrous metals and ferrous metals. The upstream commodity prices are rising overly high and fast. You mentioned that it would lead to PPIRM and PPI being inverted. In other words, the downstream manufacturers are being forced to accept the prices that are rising overly high and fast. What situation do downstream manufacturers face currently? Generally speaking, there is still overcapacity in the market. In certain sectors, it is still buyers' market. Therefore, it is impossible for enterprises to pass on the higher prices of bulk raw materials to the market through end products, because if they do so, they may lose the market as the result of increased prices. In order to compete, they cannot raise their prices. However, this situation may somehow push them to strengthen management and push for technological progress in order to absorb the increased prices of upstream raw materials . But on the other hand, the PPI of upstream industries are rising so high and fast, so it is hard for enterprises to absorb it all in a short time. And this indeed make the downstream enterprises feel pressured when running their business. This was a structural issue we faced as China's economy went downward from the second quarter to the third quarter. 

So, what should we do now? First, we should ensure the supply and stable prices of upstream commodities. Some measures have been effective in certain sectors, such as with copper, which reached its highest-ever price in the second quarter. But, the price rises for copper, nonferrous metal and steel have now dropped. If we make great, solid efforts to ensure supply and stabilize prices as one of the key macro policies in the fourth quarter, we surely can help enterprises overcome the difficulties. In addition, I think we can also introduce some better measures to ensure supply and stabilize prices of upstream commodities and help downstream manufacturers overcoming difficulties with practical policies and measures. Thank you.

Cover News:

My question is regarding employment as well. What are your thoughts on the employment data in the first three quarters of this year? In addition, the unemployment rates of people aged 16-24 are going down month by month, but the rate is still at a high level — why is that? Will this situation improve in the future? Thank you.

Yao Jingyuan:

Where is the difficulty for employment? At present, there is a coexistence of recruitment difficulty and employment difficulty. I performed research in the Yangtze River Delta and the Pearl River Delta and found that quite a few companies are now having difficulty recruiting new workers. On the other hand, the unemployment rate for young people is relatively high. As I mentioned earlier, China's surveyed urban unemployment rate is 5.2%, and the unemployment rate among those aged 16-24 is significantly higher than the overall level. One reason is that there are 9.09 million college graduates this year, over 300,000 more than last year's figure of 8.74 million. This is not a small number. There is another reason: In a normal year, a considerable number of fresh graduates will study abroad, but this year they are mostly unable to study abroad. These students are now staying in the country, and a considerable number of them will look to gain employment. Therefore, the employment pressure for young people this year is very high. Of course, there are also structural problems in employment. More young people hope to find jobs in the modern services industry and are unwilling to work on production lines, which makes it difficult for manufacturing companies to recruit people. Therefore, combining the above reasons, a situation has occurred where the youth unemployment rate is higher than the average unemployment across society.

The CPC Central Committee and the State Council have clearly set the employment of college students as a key task. The Ministry of Education and other relevant departments have adopted many measures in relevant aspects. I think some policies will also be introduced in the future. Next, in the process of achieving the second centenary goal, China will take innovation as its primary driving force, and talented personnel are the primary resources. Talented young people are the main body of innovation, so it is necessary to provide more desirable positions for college graduates through structural adjustment and optimization, which can help solve the employment problem for them.

The Poster News APP:

Recently, China has been strengthening dual control of total energy consumption and energy intensity, and witnessing power supply shortages. How do you think these factors stand to impact China's economy? Another question: Some commentators believe that the dual control policy will have a greater impact on production and people's lives – on the one hand, rising upstream prices lead to high PPI; on the other, the upstream profit is squeezing the downstream takings, and state-owned enterprises are squeezing against private enterprises. What do you make of this problem? Thank you.

Yao Jingyuan:

First of all, I think the dual control policy is a correct move. Green development is our very important path for scientific development. We must unswervingly adhere to the five development concepts, namely innovation, coordination, green development, openness, and sharing. Achieving carbon peak and carbon neutrality is a solemn commitment made by China as a responsible major country, and it is also our contribution to building a community with a shared future for mankind.

We live in Beijing – what have Beijing's greatest achievements been in recent years? I personally believe that it is not how many buildings have been built, how many roads have been built, or how much the GDP has grown, but the changes in the environment. For example, in my home, we previously used several air purifiers. But in the past two years, especially this year, we haven't used our air purifiers once. This reflects how the air has improved; the sky is blue, and the land is green. This is the result of our implementation of new development concepts.

Of course, when growing the economy, we need to take some issues into account. For example, how to deal with the relationship between phased tasks and long-term goals, and which aspects should be considered to maintain a certain development speed? For example, growing the economy is like driving a car. The first step is to control the vehicle well. Where should the steering wheel turn toward? It should go toward the second centenary goal, toward the direction of high-quality development, and in terms of specific operations, one is the brake, and the other is the accelerator. Don't underestimate these two things – I think they are quite important. Therefore, macro-control is an art. For example, in the specific implementation process, some problems such as "campaign-style carbon reduction" do exist. These problems indicate that the relationship between steady economic growth and structural adjustment, transformation, and upgrading is not handled properly, and it is not fully understood that promoting high-quality development is a process. From this perspective, we must adhere to the green development concept in the next step. This guiding concept cannot be changed, but in the implementation process, we must well handle the relationship between ensuring steady growth and transforming the growth model and making structural adjustments, as well as some specific problems that occur in promoting high-quality development.

As the CPC Central Committee and the State Council have already made arrangements, and we have also summed up the experience and lessons of previous macro-controls, we can absolutely deal with this series of problems well. From this perspective, as we adhere to green development and use dialectical thinking to handle some of the current development issues, there will be no problem in maintaining steady and healthy growth of the Chinese economy.

China Daily:

Mr Xu, China's economy has been recovering steadily this year. We have also seen considerable growth in some new industrial products and consumer goods in foreign trade. It can also be seen from the third-quarter data from the National Bureau of Statistics this morning that the year-on-year growth of some industries such as innovation investment and new energy vehicles has also been considerable. Please comment on how you see the role these industries play in economic development. As you mentioned just now, the investment situation will face some pressure in the third and fourth quarters. What are your suggestions for the next step to encourage these industries to make greater contributions to economic growth? Thank you.

Xu Xianchun:

Thanks for your question. Indeed, despite considerable downward pressure on the economy, some new industrial products and new forms and models of business in the field of foreign trade continue to maintain relatively rapid growth.

In terms of new industrial products, driven by the acceleration of 5G construction, the growth of consumer electronics and automotive electronics demand, the improvement of industrial automation, and other factors, the output of new products maintained rapid growth. This morning, the spokesperson of the National Bureau of Statistics said that in the first three quarters, the output of new energy vehicles, industrial robots, and integrated circuits increased by 172.5%, 57.8%, and 43.1%, respectively, year-on-year, with an average growth rate of more than 28% in both years. In terms of new business forms and models in the field of foreign trade, some policies and measures have been implemented and are effective. New forms and models of foreign trade, represented by cross-border e-commerce, have injected new momentum into foreign trade. According to the data released by the General Administration of Customs, in the first three quarters of this year, China's cross-border e-commerce imports and exports increased by 20.1%, and market procurement exports increased by 37.7%.

In recent years, new economy drivers have played important roles in driving economic growth. Before the COVID-19 outbreak, economic growth showed a downward trend, but the rapid growth of new economy drivers played an important role in curbing the slowdown. During the serious outbreak of the epidemic, the economy declined, but new economy drivers still maintained rapid growth. The country's GDP fell by 6.8% in the first quarter of last year. However, the added value of information transmission, software, and information technology services increased by 13.2%, contributing 0.6 percentage points to GDP growth and playing an important role in slowing down the economic decline. New economy drivers have also played important parts in promoting economic recovery. In the first three quarters of this year, the added value of high-tech manufacturing above designated size increased by 20.1%, and the added value of information transmission, software, and information technology services increased by 19.3%. Online retail sales of physical goods also maintained rapid growth. Therefore, new economy drivers have played important roles in economic growth.

Going forward, we can consider promoting the development of new economy drivers in various ways.

First, we will actively promote the digital transformation of enterprises. I am leading a research team at the Tsinghua China Data Center to study new economy drivers. We have surveyed more than 70 enterprises of new business forms and models in 13 provinces and cities. We deeply understand how important digital transformation is to the survival and development of enterprises. All enterprises with successful digital transformation have realized digitization from product R&D and design, production and operation, sales to after-sales management, greatly improving their ability to adapt to the market as well as improving production and operation efficiency and reducing production and operation costs. Those enterprises whose digital transformation was unsuccessful or has just started are facing a series of difficulties and problems. Therefore, we believe that digital transformation is very important. General Secretary Xi Jinping attached great importance to digital transformation, pointing out that “The global economy is embracing the trend of digital transformation, and the new round of industrial revolution will reshape human society in profound ways.” Digital transformation is very important, and we should actively promote the digital transformation of enterprises.

Second, we should strengthen support for research and development (R&D) and innovation, strive to achieve breakthroughs in key and core technologies, and actively cultivate new points of economic growth. As the traditional driving force weakens, new ones must be replenished through R&D and innovation. This is of great importance to economic growth.

Third, we should continue to improve the business environment and policy system. The business environment is of vital importance to a country or a region. A better business atmosphere and policy system can help boost the development of new market entities and enhance China's economic resilience.

Fourth, we should continue to consolidate the cluster-based, informatized and smart development of new products, for example, New Energy Vehicles (NEVs), industrial robots and integrated circuits, so as to pursue high-quality economic development.

Fifth, we should continue to support the development of new industries and new business types and models including overseas warehouses, cross-border e-commerce and industrial networks. We must help connect each link of domestic and global supply chains. There are still more growth points in foreign trade. Broad growth potentials exist for services in the fields of software and information technology, travel, finance and insurance, education and elderly care. Take elderly care as an example. China's population ageing is deepening, putting a lot of pressure on elderly care. Therefore, advanced ideas and practices in some foreign countries can be drawn upon to cope with our domestic challenges. A lot of work can be done in foreign trade, which will not only boost foreign trade but also promote domestic economic development and social progress.

South China Morning Post (SCMP): 

Recently, there are some concerns that the risk of stagflation is rising in China. What do you make of that?

Yao Jingyuan:

First of all, the concept of stagflation began in the United States in the 1970s. According to the previous economic theory, too much inflation means an economy is overheated. If an economy slows down, there will be no inflation. This, Keynes's general theory, is an old theory. But stagflation swept America and Europe in the 1970s. What does stagflation mean? It means on one hand, the economy is slipping sharply and even retracting. On the other hand, prices will rise rapidly. I don't think that China should worry about it. I have just mentioned that many people showed concerns over possible inflation in the end of last year and the beginning of this year. However, the problem we are facing now is to stabilize food prices. Take pork prices as an example. It was 80 yuan per kilogram two year ago, but it is 18 yuan per kilogram now. If pork prices continue to drop, the pig farming industry will suffer. Therefore, efforts should be made in strengthening government stockpiling to stabilize prices. This will counter the risk of high inflation, particularly hyperinflation, in China. Moreover, from the principles of economics, inflation is basically a kind of monetary phenomenon, meaning more money chasing less products. I believe that from a monetary policy perspective, the deposit-reserve ratio can be lowered appropriately and one point down will release 1 trillion yuan in financial liquidity. I found during my investigation at the grassroots level that, generally, business liquidity is sort of under pressure.

And for China's economy, internal driving forces have worked well. For example, people's top worry now is whether the economic growth rate can remain stable in the fourth quarter of this year and the first half of next year. How to gauge these predictions? The key is the "three horses of troika" for economic growth, namely export, consumption, and investment. I don't know if you have noticed, but the Central Economic Work Conference added a phrase for each item. Export plays a role in "driving" economic growth, which means it drives the troika forward. I think there is no problem with this in regard to the fourth quarter. Consumption plays a "basic" role in economic growth. At present, consumption was hit hardest by the COVID-19 outbreak. Due to epidemic prevention and control, many consumer-intensive means of consumption such as the tourism, catering, and film industries have been heavily impacted. Therefore, consumption activities will gradually recover with our effective epidemic-control efforts. Now, data for September is better than August, and consumption and recovery are expected to continue. According to the Central Economic Work Conference, investment plays a "key" role in stimulating growth. I believe that the decline in economic growth is directly related to investment. As we all know, investment is divided into three parts: industrial investment, property investment, and infrastructure investment. In the first three quarters, the country's investment grew by 7.3% year-on-year, while the slowest sector — infrastructure investment — was up by 1.5% year-on-year, an average two-year growth of 0.4%. Infrastructure investment has increased rapidly over the past few decades and is now falling back to 1.5%, so this is a big problem. I think in the fourth quarter, and next year, we should give full play to the key role of investment in stabilizing growth, with infrastructure investment as its decisive factor. Then what can we do? As Mr. Xu mentioned in the beginning, the 14th Five-Year Plan laid out plans for 102 major projects during the period, which had undergone sufficient assessment. All these projects should start work as soon as possible in the fourth quarter and next year to form a real physical workload, which will greatly boost investment. In my point of view, some projects should come into operation earlier if possible.

In addition, Mr. Xu just pointed out that special local government bonds worth 1.8 trillion yuan were issued as of August, accounting for only half of the annual issuance quota of 3.65 trillion yuan. By this time in previous years, the proportion had almost reached 90%. Thus, we need to speed up the issuance of the remaining 1 trillion yuan-plus worth of bonds so that the construction of major projects in local areas will begin, and the real physical workload can be formed, all of which will significantly promote economic development.

In terms of prices, the CPI rose by an average of just 0.6% between January and September, with an estimated annual increase of about 1%. The low and stable price increase has given room for monetary policy. On the other hand, fiscal policy also has a lot of room. From January to August, the national general public budget revenue increased by 18.4%, while the general public budget expenditure increased by 3.6%, indicating that there is still considerable room between fiscal revenue and expenditure. We can therefore increase fiscal expenditure and adjust and improve its composition to strengthen areas of weakness. For instance, the auto industry's current weakness is its chip shortage, and for the shipping industry is the lack of containers. In fact, China has advantages in those respects — the world's largest container manufacturers are here. As a result, the fiscal policy can give more assistance to these weak links. From this point of view, we can reinforce our confidence in the internal drivers of China's economy and our capability to cope with this downward pressure.

Regarding macro regulation, we should sum up the past experience. Actually, we have the ability to step on this "gas pedal" to accelerate it. From the Asian financial crisis in 1998 to the world financial crisis in 2008, until now, we have learned lessons from a wealth of historical experiences. According to the data released by the National Bureau of Statistics today and the introduction of Mr. Fu Linghui this morning, we can see the general condition of the Chinese economy. Of course, we also need to be aware of the problems and their phased, structural, and cyclical nature. Although the reasons are complex, we have the means and capability to stabilize the economic situation, and give further role of the internal forces driving China's economy. The country's economy will still maintain healthy and better growth and is expected to expand 8% this year, which will certainly rank first among major economies around the world.

Xing Huina:

Thanks to our two experts. If there are no other questions, today's briefing is hereby concluded. Thank you, friends from the media!

Translated and edited by Zhang Liying, Yuan Fang, Zhu Bochen, Yang Xi, Li Huiru, Duan Yaying, Gao Zhan, Chen Xia, Wang Mengru, Liu Sitong, Zhang Junmian, Zhang Rui, Xiang Bin, Zhou Jing, Liu Qiang, Zhang Tingting, Ma Yujia, Zheng Chengqiong, David Ball, Jay Birbeck, and Tom Arnstein. In case of any discrepancy between the English and Chinese texts, the Chinese version is deemed to prevail.