Is the Current Rebound Sustainable？

　　China’s economic growth is picking up in astable way, with GDP increasing 7.8 percent in the thirdquarter, higher than the 7.5 percent in the second, accordingto data from the National Bureau of Statistics(NBS) on October 18. However, compared with a strongrebound in July and August, the economic upswingin September is not sustainable. Therefore, emphasisshould be laid on stimulating and stabilizing economicgrowth while carrying out restructuring.

　　The rebound

　　In the first half year, China’s economy witnessed aslight slowdown, with GDP growth dropping from7.7 percent in the first quarter to 7.5 percent in thesecond. The Central Government’s minimum target forgrowth is 7.5 percent, and panic was rife at home whenChina’s growth met the lower limit. Many internationaleconomic think tanks and institutions believed Chinawould suffer a hard landing.

　　The Chinese Government says it would do all it can to keep at or above 7.5 percent by reducing bureaucracy,expanding more pilot programs to replace businesswith a value-added tax, promoting interest rate liberalizationand carrying out reforms on infrastructureinvestment and the price of resources.

　　These policies have quickly shown results. SinceJuly, the prices of raw materials like petroleum, steeland non-ferrous metals saw an upward trend. InSeptember, the purchase management index (PMI)was 51.1 percent, rising for three consecutive months,while electricity generation and transportation havealso rallied.

　　According to statistics from the NBS,fixed-asset investment shot up by 20.4percent in the third quarter, followingthe State Council’s unveiling of favorablemeasures regarding the expansionof high-speed railways and subways,energy conservation, emission reductionand a Broadband-China strategy.

　　From January to September, the totalretail sales of consumer goods increasedby 12.9 percent, edging up slightly from thesame period last year. Due to the CentralGovernment’s ban on extravagant and costly banquetson the public dime, revenue in China’s catering sectorrose a mere 8.9 percent from January to September,down by 4.3 percentage points year on year.However,furniture, building and home decorative materials saleskept expanding rapidly and show signs of a rebound.Growth in the service industry remained flat due tothe Central Government’s efforts to reign in three majorpublic expenses: vehicles, receptions and overseastrips.

　　Fluctuations

　　Despite a stable recovery of China’s macro-economybeginning in July, there has been a lack of growthmomentum overall. Though the PMI hit a record highin September, it only rose slightly month to month andfailed to meet expectations.

　　The State Information Center, a governmentthink tank, has given three explanations.First, the slow growth of incomes.

　　Incomes for urban and rural residents grew ata pace slower than that of the GDP. In addition,structural unemployment kept deteriorating.

　　Second, the tight financing of infrastructureconstruction. Given the poor assessmentof government debt by the National AuditOffice, local government financing platformsare being squeezed. Furthermore, risingfinancing costs resulted in dwindling creditdemand, while falling profits led to a fundshortage and a declining ability to repaydebt, which has and will restrain investmentin major projects. Third, the rapid appreciation ofthe yuan undermined export competitiveness. FromJanuary to September, the real effective exchangerate rose 6.29 percent. As the dollar gains strength,the yuan is likely to appreciate in the days to come.

　　Considering the weak demand from overseas marketsand the dramatic depreciation of other currencies, thereal effective exchange rate of the yuan will exert asignificant influence on export growth.

　　Niu Li, a senior economist with the State InformationCenter, said overcapacity also cramped the developmentof the manufacturing industry and momentumfor a strong economic rebound. Mounting idleproduction capacity has become a stumbling block foreconomic growth and the ability for enterprises to upgradetheir development model toward more efficientand higher end goods.

　　“Now, investment in industries that are already harassedby overcapacity is still on the rise,” said Niu. “It’sbecoming increasingly difficult to tackle the problem.”Moreover, the rise of the consumer price index (CPI)has likely had an impact on economic development.

　　In September, the CPI rose by 3.1 percent. The centralbank may tighten its currency policy to avoid inflation,while a subsequent liquidity shortage may affectthe production and operation of some enterprises.

　　Though the exit of quantitative easing policies by theUnited States was postponed, it will take place sooneror later. Therefore, China’s economy is under threat byan appreciating U.S. dollar, gloomy financial marketsand rising borrowing costs.

　　Economic restructuring

　　The slowdown of China’s economy was initially triggeredby the 2008 global financial crisis. Since theunveiling of the 4-trillion-yuan ($586-million) stimuluspackage initiated in 2008, China’s economy hasregained some vigor. In 2010, China’s GDP regaineddouble-digit growth.

　　To maintain healthy and sustainable economicdevelopment, the Chinese Government has workedto transform the country’s economic growth modeland upgrade the industrial structure. This year, focushas been laid on eliminating overcapacity, expandingdomestic demand and developing strategic emergingindustries. To accomplish this, China has to suffer thethroes of transition because restructured enterpriseshave yet to yield profits while older enterprises areseeing decreasing profits.

　　“The slowdown is an inevitable result of economicrestructuring, and it’s predicable and controllable,”said Li Huiyong, an analyst at Shenyin & Wanguo, asecurities company based in Shanghai.

　　To double its 2010 GDP in 2020, China only needsto keep growth hovering above 7 percent. However, toachieve long-term sustainable development, China hasdecided to slow its economic expansion to carry outstructural reforms. Rebound during this past quarteris an indication that the 7.5 percent growth rate in thesecond quarter may have been the Chinese economyhitting rock bottom.

　　Nevertheless, the rapid rebound of energy-intensiveindustries has put great pressure on economicrestructuring. In the third quarter, China witnessed arebound in investment, consumption, exports and themanufacturing industry in particular, which saw itsgrowth rate of industrial added-value jumping from 8.9percent in June to 10.2 percent in September.

　　In terms of production, heavy industry productslike steel, coke and plate glass rose rapidly; in terms ofinvestment, infrastructure investment kept speedingup. The economy is once again driven by heavychemical industries, guided by government investmentand powered by state-owned enterprises.

　　Li said the focus would still be on economicrestructuring, transformation and carrying out reformsto accomplish such ends. The main current contradictionsare low-quality development and low economicefficiency rather than a slower growth rate. Chinahas to shift away from an old development modeldependent on low labor costs, exports and investment.

　　Overcapacity and overinvestment are commonplagues across the country, indicating an urgent needfor a new development model.

　　“China should fixate not on the figures but onrestructuring and upgrading to promote quality andefficient economic development,” said Li.

　　China’s economic restructuring has brought greatopportunities for foreign investors. While Chineseenterprises are still trying their utmost to adapt to thechanges in China’s economy, foreign investors haveseized the market.

　　High achiever

　　According to a report from the State InformationCenter, policies to stabilize economic growth will havean overall positive effect on the count despite slowereconomic growth. GDP growth in the fourth quarter aswell as for the whole year is predicted to stand at 7.6percent. The inflation rate will rise moderately andunemployment will stabilize.

　　Consumption will maintain stable growth in thefourth quarter. Since expanding domestic demandis a focus of economic restructuring, the ChineseGovernment will foster new growth points, such asexpanding broadband Internet access across thecountry - including in remote and rural areas - anddevelop industries that are green focused.

　　What’s more, over 20 cities have raised minimumwage standards by roughly 20 percent, which willsubstantially enhance the purchasing power of lowincomegroups.

　　The same trend will take place in regards toforeign trade. Since the U.S. economy appears tobe on its way up, the Federal Reserve has decidedto gradually reduce its quantitative easing program.The European Union has seen a turnaround. So hasJapan.

　　China is enthusiastically advancing the establishmentof free trade zones in order to create a propitiousenvironment. Given that an array of policieswas launched in the second half of the year, foreigntrade will likely expand. It has been calculated thatexports will grow by 7.5 percent in the fourth quarterand 8.5 percent for the whole year. The country’sforeign trade surplus in 2013 will reach $260 billion,up 16 percent year on year.

　　Consumer prices will rally moderately. Floodsin north China and high temperatures across thecountry during the past summer may make grainprices fluctuate. Because of restructuring, the CentralGovernment will squeeze fixed-asset investment.According to calculations, industrial production willincrease by 9.7 percent in the fourth quarter and 9.6percent for the whole year.

　　“Though the rebound may be slowing down, it willlast until the fourth quarter,” said Niu with the StateInformation Center. “In the future, the economy willgrow more stably.”