Exemplary Performance

By LAN XINZHEN

Exemplary Performance

By LAN XINZHEN

PUMPING OIL: Puguang Natural Gas Purification Plant in Dazhou, Sichuan Province, is the largest natural gas plant in Asia. China’s petroleum industry boasts a complete industrial chain, from production to distribution

The Chinese economy has overcome the global financial crisis and maintained steady and fast growth Exemplary Performance

Two concerns used to surround the Chinese economy in the outset of this year: overheating caused by“bold” plans on the part of local governments and a hard landing for the domestic economy because of austerity measures to combat in fl ation.

Based on recent National Bureau of Statistics (NBS) figures, these worries are unfounded.

China’s economy maintained its upward growth in the fi rst quarter of this year,according to NBS fi gures released on April 15. Preliminary estimates indicate the GDP was 9.63 trillion yuan ($1.47 trillion), a year-on-year increase of 9.7 percent.

“The momentum of the national economy’s growth has been fast and steady since the second half of last year. We’ve had a really good start this year, showing that the economic performance is solid and other characteristics related to increasing employment, controlling prices, stimulating industrial profits and improving people’s livelihoods are being addressed,” said NBS spokesman Sheng Laiyun.

Maintaining the trend

Growth in the fi rst quarter of this year can best be described with one word: steady.

This is good news for the agriculture sector, which China as a still-agrarian country heavily relies on for its overall economic performance. NBS estimates hold that this year the grain planting area of China will expand and its livestock production will grow on a constant basis.

The NBS conducted a planting intention survey this year of more than 70,000 rural households, and the result showed the grain planting area will reach 110.28 million hectares, an increase of 400,000 hectares from last year. Of this total, the planting area for summer grain will be 27.49 million hectares, an increase of 50,000 hectares. The proportion of firstand second-grade seedlings of winter wheat accounts for 86 percent of the total,which is 3.1 percentage points higher than in 2010. This means, natural disasters aside, China is set to realize an eighth consecutive surplus harvest year.

The NBS figures also show that in the first quarter the total output of pork, beef,mutton and poultry reached 21.42 million tons, a year-on-year growth of 1.8 percent. Of this total, the output of pork was 14.51 million tons, up 1.7 percent. Since pork prices tend to push up other food prices in China, growth in pork production will help stabilize the country’s food prices.

Industrial production realized steady growth with continued increases in industrial ef fi ciency. In the fi rst quarter, the total added value of industrial enterprises of a designated size—those with annual sales revenue exceeding 20 million yuan ($3 million)—was up by 14.4 percent year on year, against 13.5 percent and 13.3 percent respectively in the third and fourth quarters of last year. The production and sales of industrial products went up as well. In the fi rst quarter, the sales ratio of aforementioned industrial enterprises was 97.7 percent, or 0.1 percentage point higher than last year’s same period.

Indicators

Sheng said to come to the conclusion that China’s economy is truly steady, with no major ups or downs, certain standards must be met.

The first standard is economic performance. In the fi rst quarter the GDP grew 9.7 percent. The growth has remained between 9.5 percent and 10 percent for three consecutive quarters. The real economy has also shown a momentum of steady growth, with the growth of the added value of industrial enterprises above a designated size at about 14 percent for three consecutive quarters.

The second standard is employment. In the fi rst quarter the employed population in China’s urban areas increased by 4.63 million year on year, and the number of migrant workers increased 5.3 million from over a year ago. Sheng said these two indicators show that employment is increasing.

The third standard is the income of the government, enterprises and residents. In the fi rst quarter the country’s fi scal revenue increased by 33.1 percent year on year and the profits made by industrial enterprises above a designated size were up 34.3 percent from over a year ago, both increasing rapidly.Urban and rural residents’ incomes increased steadily. In the fi rst quarter, the real growth of the income of urban residents was 7.1 percent, allowing for price factors, and the real growth of the income of rural residents reached 14.3 percent on a yearly basis.

“From these indicators we can see that the country’s overall economy performed well in the fi rst quarter of this year,” Sheng said.

On April 15, the NBS also published monthly growth figures for major economic indicators for the fi rst time. In the fi rst quarter the GDP grew 2.1 percent from the fourth quarter of 2010; in March the added value of industrial enterprises above a designated size was up 1.19 percent from February; in March the investment in fi xed assets was up 1.73 percent month on month; and also in March the total retail sales of consumer goods increased by 1.34 percent over February fi gures.

“In the fi rst quarter the four major economic indicators all showed positive growth,indicating that the overall economy is growing,” said Lian Ping, chief economist at the Bank of Communications.

Major contributions

The most significant point of China’s economic performance in the fi rst quarter is the trade deficit, the first China has had in more than six years.

In the fi rst quarter, according to the NBS fi gures, the total value of imports and exports was $800.3 billion, up 29.5 percent year on year. The value of exports was $399.64 billion, up 26.5 percent, and that of imports was$400.66 billion, up 32.6 percent, creating a trade de fi cit of $1.02 billion.

“The growth of imports was 6 percentage points higher than that of exports in the fi rst quarter, which indicates the contributions of the Chinese economy to the recovery of the global economy are increasing,” Sheng said.

After the global fi nancial crisis, the rapid recovery and growth of the Chinese economy has arrested the attention of the international community. The Chinese economy has brought confidence to the world economic growth, and the expectations by the international community toward China’s role have become greater. The marked increase of imports by China means growing exports and more job opportunities to related countries and will help drive up the economic growth in these countries, Sheng said.

“An important reason for the trade de fi cit is the Chinese economy has been performing well and internal demand is increasing,”Sheng said.

According to the NBS figures, in the first quarter China’s ultimate consumption contributed 60.3 percent to the GDP, driving up GDP growth by 5.9 percentage points.Capital formation, a measure of the net additions to the physical capital stock of a country,contributed 44.1 percent to the GDP, driving up GDP growth by 4.3 percentage points. Net exports of goods and services contributed 4.4 percent negatively to the GDP, pulling down GDP growth by 0.5 percentage points.

PROSPEROUS INDUSTRY: A worker inspects the production line at Xinyuan Silk Group Co. Ltd. of Jiangsu Province

“From these fi gures we fi nd that domestic demand has contributed increasingly to economic growth,” Sheng said. NBS fi gures show that in the first quarter the total retail sales of consumer goods reached 4.29 trillion yuan ($656.97 billion), up 16.3 percent compared with the same period last year.

Sheng said the trade deficit shows that China’s trade structure is becoming more balanced and that China’s attempts to create a trade balance are fi nally paying off.

Prices under control

Inflation is one of the biggest concerns among China’s policymakers and consumers alike. According to the NBS figures, in the fi rst quarter the consumer prices went up by 5 percent year on year, which was much higher than the target of 4 percent fi xed by the government at the beginning of this year. The prices for food rose by 11 percent, the highest among all categories.

Producer prices for industrial products went up by 7.1 percent over a year ago in this year’s fi rst quarter. In March, they rose by 7.3 percent year on year, or 0.6 percent month on month. In the fi rst quarter, the purchasers’prices for industrial products went up by 10.2 percent on a yearly basis. In March, these prices grew by 10.5 percent year on year, or 1 percent month on month.

The fi gures show that in fl ation is spreading and that increasing production costs will make anti-inflation efforts more difficult to implement.

The only upside to in fl ation, Sheng said,is that it will be almost impossible for the national economy to experience any stag fl ation,because the internal impetus for economic growth is still strong.

Since this year is the fi rst year of the 12th Five-Year Plan (2011-15), local governments will be enthusiastic about investing in fi xed assets. Growth of private investment, an indicator of China’s attractiveness to outside investors, reached 31.5 percent in the first quarter.

As for consumption, although the growth of total retail sales for consumer goods declined in the first quarter, the growth was still higher than the average during the past several years. The decline was also mostly due to shrinking auto and household appliance sales.

“Because China is rapidly urbanizing,residential consumption is going through a changing phase, buying and spending more,and there will be continued room for growth in this respect,” Sheng said.

In March the consumer price index (CPI)grew by 5.4 percent year on year, higher than expected. But Sheng said the high CPI growth in March is mostly because of the lagging in fl uence of high CPI growth in the previous months.

“I think this is a good phenomenon,showing that price regulation measures of the central and local governments have achieved some effects,” he said.

Keeping the CPI growth below 5 percent with the GDP growing 9.7 percent during the same period was not easy, said Sheng. The in fl uence of the global fi nancial crisis has not totally subsided and there are still uncertainties in the world’s ability to fully recover. Recent turmoil in North Africa and the Middle East, as well as the earthquake and tsunami in Japan, increased expectations of price hikes of petroleum and related products. Besides ample liquidity in the international market, emerging economies are all going through their own rounds of inflation. In March, the CPI grew 6.3 percent in Brazil, 9.5 percent in Russia and an estimated 9 percent in India. Economic growth rates for these countries are all lower than China, but their price levels are all higher.

Pressure from imported in fl ation, Sheng said, is increasing. “In the overall structure of imported commodities in China, bulk commodities such as crude oil, iron ores and grain account for a large proportion, and prices of these bulk commodities are the highest,” he said.

In the international market, prices of crude oil have surpassed $110 a barrel and prices of grain and many metal ores have increased more than 10 percent in the fi rst quarter of this year. China had a trade de fi cit of about $1 billion in the fi rst quarter, proving that the pressure of imported in fl ation is increasing.

To control inflation, China launched a series of measures such as controlling liquidity, boosting industrial production and subsidizing low-income earners. At the end of March, the balance of the broad money supply (M2) was 75.8 trillion yuan ($11.61 trillion), a year-on-year increase of 16.6 percent, which was 3.1 percentage points lower than that at the end of last year, indicating a decline in money supply.

“It is possible that prices maintain stable only if we will effectively implement the measures launched by the Central Government,” Sheng said.

However, economists are not as optimistic as Sheng. Zhao Xiao, a professor at the School of Economics and Management of the University of Science and Technology in Beijing, said since last year, overall prices have been increasing. With a mild recovery of the world economy, the easing monetary policies by developed economies have accumulated huge in fl ation risks for the global economy.These risks are gradually seen in emerging economies.

Growing rural incomes

Sheng thinks one of the highlights for the Chinese economy in the fi rst quarter of 2011 is the accelerated increase of farmers’incomes.

According to the NBS figures, in the fi rst quarter the nominal growth of per-capita cash income of rural residents was 20.6 percent year on year, or 14.3 percent in real terms. The growth of the income of farmers has surpassed that of urban residents for the first time. In the first quarter the percapita disposable income of urban residents was 5,963 yuan ($913.17), a year-on-year increase of 12.3 percent, or a real growth of 7.1 percent allowing for price factors.

“This is extremely rare. But this is what we should expect after putting policies in place to target agriculture, farmers and the countryside,” Sheng said.

For seven consecutive years, the Central Government’s No. 1 Document has focused on agriculture and stimulated any type of growth in farmers’ incomes.

There are three direct reasons for these increases, Sheng said. First is the household income of farmers from agricultural production is increasing, which mainly bene fi ts from the rapid price hike of farm produce.Second is that more farmers are working in cities. In the fi rst quarter, the number of migrant workers increased 5.3 million over a year ago. Third is that the wage income of farmers continues to increase. In the first quarter the wage income of farmers increased by 18.9 percent and their average monthly salary has surpassed 1,800 yuan($275.65).

“Farmers’ incomes from both agriculture and non-agriculture sectors are growing fast, which is the main reason for their rapid increase in the first quarter,”Sheng said.

Not to be ignored

This year marks the fi rst year of the 12th Five-Year Plan, and local governments are already enthusiastic about investment in fi xed assets. But this may cause the economy to overheat.

According to the NBS, in the first quarter of 2011, investment in fi xed assets was 3.95 trillion yuan ($607.2 billion), a year-on-year growth of 25 percent. Of this total, the investment made by the Central Government was 254 billion yuan ($38.9 billion) and that made by local governments reached 3.69 trillion yuan ($565.08 billion),up 3 percent and 26.8 percent year on year,respectively. Among all investment in fi xed assets, 93 percent came from local governments.

Development of China’s western and central regions and plans for development of other regions have driven up growth of investment and encouraged local governments to look for ways to capitalize on this trend, Sheng said.

The biggest problem from this investment is that real estate investment has increased too rapidly. In the first quarter,investment in real estate development was 884.6 billion yuan ($135.47 billion), surging 34.1 percent compared with last year’s same period. Now China is conducting macro-control over the real estate sector in an attempt to slow the pace of real estate development. Even so, investment in real estate has remained unnervingly high.

From the NBS figures, there are also risks for further increases in the producer price index (PPI). In the first quarter, the PPI rose by 7.1 percent over a year ago. In March, the index grew by 7.3 percent on a yearly basis and 0.6 percent on a monthly basis.

ENERGETIC INVESTMENT: A residential building project is under construction in Nantong, Jiangsu Province. Investment in fixed assets increased by 25 percent year on year in the first quarter of 2011,causing worries about an overheated economy

Retail Sales of Consumer Goods (trillion yuan), ($1=6.35 yuan)

China’s Imports and Exports ($bn)

A report released by Lombarda China Fund Management Co. Ltd. said, affected by the turmoil in the Middle East and the weak U.S. dollar index, increasing international oil prices may push up the PPI in the future, making China face even high in fl ationary pressures. Controlling in fl ation,then, must be the top task of the Chinese Government’s macro-controls in 2011. To do so, the government will likely raise the interest rate and the deposit reserve rate.

Sheng also said it is hard to judge now how much PPI growth will be transmitted to the CPI, since the transmission involves various links such as production, logistics and corporate innovation.

“I think enterprises should enhance their internal structural adjustment, technology innovation and structure upgrading to deal with these factors of pressure,” Sheng said.

According to Sheng, the environment for international and national economic development is still fairly complicated. In the next phase, the government should continue to carry out the pro-active fi scal policy and prudent monetary policy, maintain the continuity and stability of the policies and improve their relevance, flexibility and effectiveness. The government should also persist in balancing the relationships between steady and comparatively rapid economic development and between the adjustment of economic structures and the management of inflation expectations, so as to further consolidate the momentum of economic development.