Economy Expected to Rebound In H2

Specialists interviewed generally held an idea that China had a downward trend in the economy, thus GDP below 8% was still in line with expectations. There is no need to worry about it too much, because it is supposed to rebound steadily in the next half.

Slow growth due to foreign demand shrink and domestic regulation

Specialists pointed out that the major cause of economy weakening lied in the synchronized slowdown of both foreign and domestic demands. On the one hand, foreign demand was still decreasing because of eurozone crisis; on the other hand, as regards the internal momentum for investment, the increase rate of investment in real estate slowed sharply because of the tight regulation, sluggish sales and limited capital resources.

From the statistics of NBS, the macro-economy was dropping from May to June, and the domestic demand was still bearish relatively. As regards production, the added value of industries above a designated scale increased by 9.5%, 0.1 percentage points lower than last month. The crude steel output in June was 60.21 million tons, only up by 0.6%; the gross electricity generated in June had zero growth, which was 393.4 billion KWh. These indicators showed that there was still a long way to go in the regulation of industry, especially in heavy industry, and the pain of destocking was still continuing.

The chief economist of Industrial Bank Lu Zhengwei considered that the reason for lower industry growth rate than expected was that finished goods had high inventories. The stocking was still on its top, while the purchase quantity stood at a lower level, which formed severe challenges against de-stocking. Referring to the previous inventory cycle, there was still half way to go to finish the process of de-stocking. If maintaining the present policies, the process might last to Q1 next year; if strengthening, it might be finished at the end of this year, which was thought to have little possibility at present.

The spokesman of NBS Sheng Laiyun thought that the major reason for slowdown of economy this year was the regulation of real estate industry. As the regulation deepening, the investment in housing dropped sharply. The growth rate of investment in real estate development was 16.6%, lower than that of fixed asset investment in the whole society. The sales acreage of commercial residential buildings decreased by 10% over the same period last year, and the sales volume decreased by 5.2%.

Moreover, as regards foreign demand, the statistics of exports and imports in June released by Customs showed that the slowdown of imports in processing trade indicated a fragile economic environment globally.

Statistics show positive signals

Things seemed to be positive at the same time. The statistics of consumption, investment, exports and imports started to be stable, and some data increased obviously, which indicated the effect of moderate pre-adjustment and fine adjustment by the government.

As regards the investment, it rose by 20.4% in fixed asset, 0.3 percentage points higher than the past five months, especially the investment in infrastructure, which increased by 4.4% to 2,1762 trillion after dropping by 2.1% in Q1. Though the growth rate of investment in infrastructures like railways and roads slowed down, it remained high increment speed in industry investment, which was 23.8% with an amount of 6,5897 trillion.

As regards the consumption, the nominal growth rate of retail sales of consumer goods was 13.7%, 0.1 percentage points lower than the last month. With no considering the price, the actual increase rate was higher than the last month.

The economy is expected to rebound steadily in Q3

Thought the pressure from downward trend of the economy existed, many positive elements started to accumulate, including easing monetary policy, accelerating fiscal policy adjustment and the improvement of economic situation in Europe.

Ba Shusong, Deputy Director of the financial center in Development Research Center of the State Council, predicted that as banks strengthened the support of capital to entity economy, the macro-economy might come out of the present pattern of “bottoming out in month-on-month growth in Q1, bottoming out in year-on-year growth in Q2, and rebounding moderately in Q3 and Q4.”

The chief economist of the Bank of Communications Lian Ping also said that things would be better in the next half year, and it was possible for the GDP growth rate of the whole year to realize and exceed 8%. Lian pointed out that despite the severe economy situation in the first half year of 2012, foreign and domestic demands showed encouraging signs of recovering in May under the influence of policies to“maintain steady increase”. The economy was expected to rebound steadily in Q3 and it had great potential to have a soft landing for economy growth.

Specialists interviewed generally considered that the basic situation of our economy hadn’t changed. The increase rate was expected to be steady and even rebound slightly. But a long period was required to solve the sluggish foreign demand and domestic structural problems, we should not expect too much and the growth rate of the whole year would fluctuate around 8%.

The chief economist of China International Capital Corporation Limited Peng Wensheng predicted that easing package policies would be implemented in order to maintain steady increase. Quantitative easing was a major method in monetary easing, and would be realized by open-market operations and further reducing the reserve requirement ratio by 200 basis points. If the inflation rate decreased quicker than expected, it would signal a further interest rates cut.