Collaborative Growth: Driver Behind China’s Better-Than-Expected Q1 Growth

by+Li+Hainan

Data released by the National Bureau of Statistics of China on April 15， 2016， showed the countrys GDP exceeded 15.85 trillion yuan and grew 6.7 percent year-on-year in the first quarter of this year. Despite the fact that the growth rate is slightly lower than 6.8 percent from the fourth quarter of 2015， market analysts still applauded Chinas economic achievements in the first quarter of 2016 against a backdrop of the volatile world economy and widespread pessimism over Chinas economy in the first two months of the year， dubbing the quarter a “good start” for the 13th Five-Year Plan period （2016-2020）.

Marchs pleasant surprise about Chinas economic growth should have been apparent. The crucial factor was collaborative growth of traditional and new industries.

After the 2008 global financial crisis， the traditional economic growth mode based on fast-growing investment and export gradually lost momentum in China. Transforming economic growth modes while seeking highquality development in the “new normal”period has gradually become the dominant trend for Chinas future development.

Based on the prediction that the growth rate of investment and export would continue dropping in China， some produced gloomy forecasts for the countrys GDP in the first quarter. However， reality has proven they were wrong. Statistics show that Chinas total investment in fixed assets （excluding rural households） realized a year-on-year growth of 10.7 percent to nearly 8.6 trillion yuan in the first quarter. That growth rate is 0.7 percent- age points higher than that of 2015. After a sharp decline in the first two months of this year， Chinas exports grew 18.7 percent in March， much higher than expected.

Alongside the steady growth in investment and rapid rebound of exports， Chinas constant effort towards economic restructuring was another important factor behind the nations better-than-expected growth in the first quarter， according to Wang Jinbin， vice dean of the School of Economics at Renmin University of China. Statistics show that tertiary industries contributed 56.9 percent of Chinas GDP in the first quarter， two percentage points higher than the same period of the previous year. The figure was 19.4 percentage points higher than that of the secondary industry. Moreover， development coordination between different regions was enhanced. The total added value of industrial enterprises above the designated size in central and western China grew 7 percent and 7.3 percent， respectively， both higher than in eastern China， which means the development imbalance was further reduced. All of these numbers evidence the fruits of Chinas economic restructuring efforts. Despite the fact that manufacturing continues declining， the countrys service industries are expanding rapidly. In particular， some fast-growing hi-tech sectors are expected to become new engines of the Chinese economy in the future.

Chinas better-than-expected economic growth in the first quarter of 2016 is working wonders to ease the pessimism over the countrys economic prospects and refuting some foreign economists and institutions gloomy predictions for the worlds second largest economy. Changing opinions are already coming out. In its latest report， the International Monetary Fund （IMF） raised its 2016 forecast for China by 0.2 percentage points to 6.5 percent while lowering its forecast for global growth.

Currently， China is pushing forward two reforms： One is the debt-for-equity swap which will play a considerable role in lowering enterprises financial leverage ratios， and the other is tax reduction， including the policy to replace the business tax with a value-added tax to reduce enterprises tax burdens. According to market analysts， both reforms aim to help enterprises cut costs through supply-side reform. This is also the ultimate goal of Chinas supply-side structural reform.

Experts believe that the implementation and improvement of such measures will stabilize economic growth and help eradicate the two hidden threats to Chinas economy： a slowdown in private investment growth and a downturn in industrial growth. Considering that Chinas traditional economic growth points are still humming along and new economic forces are gaining steam， this rebounding economic growth will continue on the upswing and there is a high possibility that Chinas economic growth in the second quarter will better the first quarter. There is no need to worry about the nations macroeconomic tendencies.