Sheng Laiyun (R Back), spokesman of the National Bureau of Statistics (NBS), speaks during a press conference on national economic statistics of the first three quarters held in Beijing, capital of China, Oct. 18, 2011. According to preliminary statistics released by NBS at the press conference, China`s GDP reached 32.07 trillion yuan (5.01 trillion U.S. dollars) in the first nine months, up 9.4 percent year-on-year. (Xinhua/Wang Yongji)
BEIJING, Oct. 24 (Xinhuanet) – China`s economic expansion slowed to 9.1 percent year-on-year in the third quarter of the year, the slowest pace in more than two years as euro zone debt crisis and a sluggish U.S. economy took a toll.
Though the world`s second largest economy has seen mild slowdown in its economic growth for three straight quarters so for, the strong economic drivers suggest china`s economy will keep its stable and relatively fast growth and the likelihood of the economy plunging into recession is very small. Experts agree that it is not time to relax monetary policy in the short term as the country is still facing increasing uncertainties both at home and abroad.
Small possibility of double-dip recession
Analysts agreed that even though the risk of double-dip recession of the global economy looms due to debt crises and lackluster economic growth in major developed countries, the risk of world`s second-largest economy experiencing such a recession in the near future is very low.
Despite challenges and uncertainties internally and externally, China`s economy will likely maintain its stable and relatively fast growth in the coming period, boosted by a strong growth momentum, NBS spokesman Sheng Laiyun told a recent press conference.
"China`s economic growth is stable, and the possibility of a double dip is very small in the coming period," he said.
The country`s GDP grew 9.1 percent year-on-year in the third quarter of the year, compared to 9.5 percent in the second quarter and 9.7 percent in the first, the National Bureau of Statistics (NBS) announced on Tuesday.
The economic figures indicated that the drivers of economic growth remain strong.
NBS data showed that fixed asset investment jumped 24.9 percent year-on-year to 21.23 trillion yuan (3.33 trillion U.S. dollars) in the first nine months, of which 59 percent had come from the private sector.
Industrial value-added output shot up13.8 percent year-on-year in September, up from the 13.5 percent growth in August. Fixed assets investment soared 24.9 percent year-on-year in the first nine months, compared to a 25-percent gain in the January-August period.
Boosted by robust auto and construction materials consumption, the country`s retail sales surged 17.7 percent from a year earlier in September, following an increase of 17 percent in August.
Further, China`s Purchasing Managers` Index (PMI), another important indicator for economic performance, continued its rise in September. The index rose to 51.2 percent, up from 50.9 percent in August. It marked the second straight month that the index kept rising month-on-month.
Sheng said those economic indexes demonstrate that china`s economy is still running stable and relatively fast despite mild slowdown. Therefore, the risk of double-dip recession is quite low.
"There was an obvious trend of the country`s economic development shifting from a stimulus policy-driven growth to a self-initiated mode," Sheng pointed out.
Lian Ping, chief economist of the Bank of Communications, said on Tuesday that China`s economy will not incur a hard landing.
Lian also said China`s economy is unlikely to suffer a double dip as domestic demand remains strong. He said that investment is not likely to decline, the real estate market will stabilize, and the auto market will start to pick up.
Echoing Lian`s view, Louis Kuijs, Hong Kong-based chief Asia economist at MF Global Holdings, does not believe that the country will experience a double-dip recession and is confident that China can be an engine for global growth thanks to its manufacturing industry.
Fan Jianping, head of the Economic Forecast Department at the State Information Center, also dismissed concerns about a steep correction.
"Fears of a hard landing (in China) are unfounded," he said, citing still robust domestic consumption.
Consumers select vegetables at a market in Nanjing, capital city of east China`s Jiangsu Province, Oct. 14, 2011. China`s consumer price index (CPI), a main gauge of inflation, eased slightly to 6.1 percent year-on-year in September from 6.2 percent in August, the National Bureau of Statistics said Friday. (Xinhua/Wang Xin)
"Troika" shift gears
As the GDP growth moderated, the "troika" driving the economic growth, namely export, investment and consumption shift gears as export and investment slowed down while the consumption contributs more to GDP.
The main reason behind the fall of GDP growth lies in dwindling external demand and investment. September saw the trade surplus narrow for a second straight month to 14.5 billion U.S. dollars with imports and exports faltered more than expected.
Exports in September rose 17.1 percent year-on-year, down from August`s 24.5 percent.
For the time being, the world economy shows clear signs of downturn as the developed economies are struggling with debt problems and the emerging economies like India and Brazil are faced with high inflation pressures.
Adding to the woes, the fluctuating RMB exchange rate and cash-strapped small and medium-sized enterprises are also a brake on the growth of foreign trade.
The 110th Canton Fair, which opened on Friday, has seen a reluctance on the part of both overseas buyers and Chinese exporters to confirm long-term orders, said MOC spokesman Shen Danyang said on Wednesday.
Zhang Yansheng, head of the Foreign Trade Research Institute of the National Development and Reform Commission (NDRC), is of the view that China`s exports will encounter more uncertainties in the fourth quarter of this year.
Fixed-asset investment, a key driver behind economic growth, showed robust growth of 24.9 percent in the first nine months. The growth rate was 0.7 percentage points lower than that during the first six months, said NBS spokesman Sheng Laiyun in a press release.
Unlike the dual slowdown of export and investment, the country`s retail sales grew 17 percent to 13.0811 trillion yuan (2.05 trillion U.S. dollars) in the first nine months from a year earlier, accounting for 47.9% of total GDP figure, which is 0.4 percent higher than that of first half year.
In September, the country`s retail sales grew 17.7 percent from a year earlier and were up 1.35 percent from August, National Bureau of Statistics (NBS) announced on Tuesday.
Analysts said that the nation should make renewed efforts to boost domestic demand as global economic prospects continue to dim.
Exports may contribute less to GDP growth in 2012, so domestic demand takes on greater urgency, Fan Jianping of the State Information Center said.
Liu Yuanchun, deputy head of the School of Economics of the Renmin University of China, said the government has attached great importance to expanding domestic demand, but it is not a short-term project.
"The future policies to enlarge domestic demand are expected to focus on improving residents` income and lowering taxes, including consumption tax and custom duties, but adjustment takes time," Liu noted.
Pan Xiangdong, chief economist of Yinhe Securities, pointed out that the key to expanding the domestic demand is to increase people`s incomes and this will involve adjusting the distribution of national income by reforming the monopolized industry and reducing the income gap among various sectors.
Domestic consumption could be boosted next year by a recovery in car sales, said Wendy Liu, a Hong Kong-based economist with the Royal Bank of Scotland (RBS). "Car sales are predicted to grow by up to 20 percent next year, a sharp rebound from 5 percent this year," Liu said.
Stable economic policy should not ease amid uncertainties
Currently, China`s economic development is faced with the complex environment at home and abroad as unstable and uncertain factors are on the rise.
The world economic condition has been undergoing complex changes as European debt crisis spreads further while the U.S. sovereign credit rating was downgraded. Furthermore, the international financial markets are mired in turmoil.
At home, new problems cropped up in the course of China`s economic development. On the one hand, the inflation pressure continues to rise and on the other hand, small businesses are suffering from operating difficulties.
NBS spokesman Sheng Laiyun said in the face of the severe and complex world economic situation, China has been constantly strengthening and adjusting macroeconomic control policies, following a proactive fiscal policy and prudent monetary policy. As a result, the economy has been operating soundly and moving in the right direction expected by the government`s macro-control policy.
"In the next phase, China should maintain the continuity and stability of macro-control policies while giving them more foresight, relevance and flexibility," Sheng emphasized.
China has made stabilizing prices a top priority in its macro-economic controls while trying to avoid harming its economic growth by means of tightened monetary policies.
To mop up the excessive liquidity that helps fuel inflation, the central bank has raised the benchmark interest rates five times since October 2010 and increased the reserve requirements for commercial banks six times this year.
The tightening measures have adversely affected small companies as they don`t have easy access to bank lending. The State Council announced a series of supportive financial and fiscal measures on Oct 12 to bail out cash-strapped small businesses and create more investment opportunities for them.
Analysts maintain that China`s macro-economic policy should not ease when runaway consumer prices have not yet been fully contained, whereas, neither should the policy be further tightened when enterprises get into financing troubles.
In this dilemma, experts suggested fiscal policy should play a greater role, like reducing the taxes of small and medium-sized businesses, and at the same time some structural measures should be added to the monetary policy.
Zhang Liqun, a researcher with the Development Research Center of the State Council, expressed his opinion that given Chinese economy slowed down moderately and the consumer prices remained at a high level, so the macroeconomic control policy should keep stable and on the whole, while at the same time be prepared to guard against risks in case both domestic and international environments get worsening.
The central bank may not relax the prudent monetary policy in the short term with the inflation rate still at a high level, said Liu Ligang, director of the economic research department of ANZ Greater China.
He added that the central bank is likely to enhance financial support for capital-strapped small and medium-sized enterprises.
A report released by the Chinese Academy of Social Sciences (CASS) said the macroeconomic control should not only contain the inflation, but also keep stable and relatively fast economic growth. Top priority should be given to stability, and due consideration in macro control should be given to flexibility and prudence.
Some analysts believed that considering the fall of both economic growth and consumer prices, macroeconomic policies should not take a U turn dramatically, but the time may probably has arrived to make slight adjustments of some policies.
"Macro-policy objectives may shift slightly from fighting inflation to ensuring growth after inflation comes down as the environment for small exporters may become tougher in 2012," said Wendy Liu, a Hong Kong-based economist with the Royal Bank of Scotland (RBS).
CPI to continue to ease in Q4
NBS spokesman Sheng Laiyun said on Tuesday it is quite likely that consumer price increase would continue to ease in the last quarter of the year, "but we must remain vigilant as the prices are still at a high level."
Since the beginning of this year, facing the ever rising inflation pressure, China has taken a series of measures to stabilize prices, such as reducing liquidity, boosting supply, improving circulation channels, containing irrational demand while establishing a price control mechanism.
From the consumer prices index figures of previous months, those measures have proven to be quite effective. The consumer price index, a main gauge of inflation, fell for two consecutive months to 6.1 percent in September, from July`s 37-month high of 6.5 percent.
Sheng said the country`s consumer price hike had been "preliminarily contained" as the growth of the consumer price index had fallen for two consecutive months.
As to the price trend in coming months, Sheng pointed out that there are several favorable factors attributing to the drop of prices, such as moderated economic growth, strain in liquidity, the good autumn grain harvest, weakened carryover effects and a significant drop in international commodity prices.
However, Sheng cautioned that some long-term factors to affect the price hikes will not be brought under control in the short period of time, including the rising cost of raw materials, labor and resources. In addition, as the world liquidity is still excessive, the imported inflation pressure has not completely subsided yet.
The September CPI is still high, but stubborn domestic inflation is expected to continue to ease in coming months as a slowdown in the global economy weighs down demand, said economists.
"Price growth will continue to ease in October, but it will not be a significant decline," said Liu Yuanchun, deputy head of the School of Economics of the Renmin University of China.
Zhang Liqun, a researcher with the Development Research Center of the State Council, also estimated that the good autumn harvest will bring more supplies to ease food prices.
Zhang estimated that for the whole year, China`s consumer price will grow by 5 percent from last year, one percentage point higher than the government`s target.
"The government has underestimated this year`s new price factors, especially the hike in domestic pork prices and international commodities," he said.
Many economists predicted that the nation could see GDP growth of above 9 percent for the whole of this year, compared to 10.4 percent in 2010.
Economist Cao Yuanzheng gave his forecast that CPI for the fourth quarter of this year is expected to drop to about 5.5 percent as the CPI is on a declining trend for the time being. He estimated that the average CPI would be about 5 percent.
The Chinese Academy of Social Sciences (CASS), a major government think tank, cut China`s growth estimate for 2011 to 9.4 percent from a previous forecast of 9.6 percent.
The CPI is estimated to stand at 5.5 percent for the year, and will further ease to 4.6 percent in 2012, the think tank predicted in its latest report on the macro economy.
