Off to a Good Start

By Zhou Xiaoyan

The Chinese economy expanded 6.8 percent in the first three months of this year on robust domestic consumption and a strong service sector， laying a sound foundation for sustained， healthy growth for all of 2018， according to the National Bureau of Statistics （NBS）.

“The growth rate has been within the 6.7- to 6.9-percent range for 11 consecutive quarters， with a stable job market and infl ation rate，” Xing Zhihong， an NBS spokesperson， said at a press briefi ng on April 17.

However， uncertainties in the global market， such as mounting trade protectionism and the spillover effect of possible monetary policy changes of other major economies， are casting a shadow over the worlds second largest economy.

Good signs

Economic indicators for the first quarter demonstrated once again that China has shifted from exports- and investment-driven expansion to consumption-led growth. In the three months， consumption contributed 77.8 percent to economic growth， 46.5 percentage points higher than investment.

The integration of online and offline sales campaigns has not only boosted online sales volume， but also lifted sales of brickand-mortar outlets.

Retail sales growth quickened to a higher-than-expected 10.1 percent in March. In total for the fi rst quarter， retail sales grew 9.8 percent while online retail sales surged 35.4 percent and the business volume of the courier sector increased over 30 percent as a result of the e-commerce boom.

Japanese investment bank Nomura said among Chinas fi rst-quarter data， the “bright spot” was retail sales. “This is a good sign that growth is rebalancing from investment to consumption，” Nomura said in a research note. “Indeed， underneath the very stable GDP growth over the past five quarters has been a continued rapid rebalancing from old economy industrial sectors and investment toward new economy sectors like tech and service， as well as consumption.”

Chinas restructuring efforts are paying off， with the economic structure signifi cantly improved. The service sector is taking the lead as the country makes headway in steering its economy toward high-quality growth and away from inefficient investment， lowend exports and polluting factories.

The service sector has been Chinas strongest after surpassing the industrial sector in 2012. Service industries accounted for 56.6 percent of the economy and 61.6 percent of its growth in the fi rst quarter， NBS data showed.

The industrial sector is also climbing up the value chain and marching toward medium- and high-end production. Hi-tech and equipment manufacturing segments accounted for 12.7 percent and 32.2 percent， respectively， of the total industrial output.

According to Xing， innovation-driven growth gained more momentum， with around 14，700 new companies founded on average daily. New industries and new business models are thriving. Output for strategic new industries increased 9.6 percent in the first quarter， much higher than the overall growth.

“The Internet Plus strategy has been integrated into all sectors， giving birth to new business models and injecting fresh impetus into the broader economy，” Xing said.

Looking ahead

“Investment in the service and high-end manufacturing sectors is accelerating， signaling possible industrial structural changes in the future. New types of consumption—culture， elderly care， healthcare and travel—will boom in the coming years，” Xu Hongcai， deputy chief economist with the China Center for International Economic Exchanges， told Beijing Review.

With the ratcheting up of China-U.S. trade friction， there have been mounting concerns that it could damage the Chinese economy in the long run. But Xing said trade tensions between China and the United States cannot hinder a stable and resilient Chinese economy.

“China doesnt seek trade surplus， which has been narrowing in recent years. Our goal is more balanced trade， which is good for Chinas economic growth. An increase in Chinese exports is the result of the competitiveness of Chinese products，” he said.

According to NBS data， domestic demand contributed 105.7 percent to Chinas GDP increase on average from 2008 to 2017. It has been the number one driving force of economic growth for the past fi ve years， playing a vital role in helping China cushion the impact of external shocks. Compared with exports and investment， consumption has less fluctuation， therefore the changes in economic structure will help increase the stability of the Chinese economy.

According to Xing， after years of supplyside structural reform and an accelerating shift to an innovation-driven economy， China has gained a great deal of internal growth momentum so that its economy is resilient enough to make adjustments based on external changes.

The spokesperson said Chinas increasingly domestic consumption-led growth， its expanding innovative edge and ample room for policy adjustments make the country“fully capable” of handling trade friction with the United States.

Xu， however， warned that China should not underestimate the negative impact of external factors on its economy， especially during the next three months.

“The U.S. Federal Reserve is likely to increase its benchmark interest rates again in June. Combined with the possible escalation of China-U.S. trade tensions， it could deal a blow to Chinese exports， cross-border capital fl ow and domestic industries，” Xu said.

He added that further tax reductions by the U.S. Government could possibly undermine the competitiveness of Chinas manufacturing industry as international capital and imported production and technological capacities are likely to fl ow back to the United States following preferential tax policies.

“To cope with these challenges， China should continue to advance innovationdriven growth and supply-side structural reform， placing a priority on lowering costs for businesses，” Xu suggested. “New measures of reform and opening up should be implemented as soon as possible， unleashing more reform dividends.”