China's first-quarter economic growth probably slowed further from last year, and that deceleration will persist into the second quarter, according to many observers.
But it's a bit of a surprise that few of them are surprised. And none argues that it's time for the government to launch a massive stimulus program. This can be interpreted as support for the stance adopted by Premier Li Keqiang, who told a high-level forum in Bo'ao, Hainan province last week that China won't print money to support higher growth.
Some sectors may be more affected than others by the ongoing slowdown. Some industries may go through more painful readjustments than the rest of the economy. There are also other industries that may experience less difficulty or even faster growth.
To identify these industries, China Daily solicited comments from economic experts who are familiar with the country. Most of them also tend to agree that the economy will show a slight increase in growth beginning with the third quarter.
We expect China's GDP growth in the first quarter to slow to 7.3 percent year-on-year. This is not a surprise to us. We have long been flagging the risk of a slowdown in the first half after a growth rebound in the third quarter of 2013.
We expect GDP growth to slow down further and bottom at 7.1 percent in the second quarter.
We think that the property sector is the top risk for the economy, given excess investment and the importance of the property sector in the overall economy. The growth slowdown might provide some opportunities for the growth model restructuring.
We do not expect the government to roll out new easing measures in April, as it will likely wait to see how the fiscal easing measures announced over the past several weeks affect the economy. We expect growth to slow in the second quarter, partly due to weak momentum in the property sector, and the government will likely have to ease policies further, particularly on the monetary side.
With policy loosening, we expect growth to rebound in the second half, to 7.4 percent year-on-year in the third quarter and 7.5 percent in the fourth quarter. Industrial production, retail sales and fixed-asset investment will all improve in the second half. Inflation will likely rise as well.
----- Zhang Zhiwei
RESEARCH ANALYST WITH NOMURA SECURITIES CO LTD
A wide range of economic indicators, such as fixed-asset investment, industrial output and the purchasing managers' indexes, dropped to historic lows in January and February. But indicators slightly improved in March. Whether this improvement persists remains to be seen. This isn't a surprise. China's economy is at a delicate transitional stage. Traditional powerful engines such as exports and manufacturing are losing momentum, while new growth drivers haven't yet solidified.
As discussed by many economists and the media, excess capacity, the shadow banking system, local government debt and the real estate market are the major causes for concern. The latter three are closely related because a majority of loans from the shadow banking system flow to the real estate sector, and another large portion goes to local government financing vehicles. As property turnover in the first quarter fell significantly and the property market came under great stress, credit quality in the sector became a problem. The increasing downward macroeconomic pressure and mounting debt are affecting credit assets in the local government debt sector.
Overcapacity is a perennial issue. The issue has become particularly severe in the past year, and I do not expect it to be resolved in the short term.
However, I would stress that so far, these risks are controllable. The simultaneous emergence of so many issues isn't necessarily a completely bad thing ... The earlier they emerge, the better.
Sectors such as energy conservation, environmental protection, urban utilities and healthcare will benefit from the urbanization drive. They are positive, despite the economic problems.
Yes. Actually, the central government has already rolled out some selected stimulus measures. That's necessary because if no fresh stimulus measures are offered, the economy might further weaken.
I do not think it is appropriate to further ease monetary policy to spur the economy, because the problem now is not a lack of money (actually, there is too much) but the lack of efficiency in the whole financial system.
If you look at how ordinary depositors are frustrated by banks' low interest rates, while many small firms are starved for cash, you will understand how low the efficiency is. China has to accelerate its liberalization of the financial sector to improve the efficiency of credit allocation. Simply scaling up money supply will not help.
There is a possibility that the economy may not have bottomed out during the first quarter. It could dip further. The real solution is acceleration of reform.
The implementation of promised reform agendas should be put into action rather just being talked about. If the government really changes, the market will give a quick, positive response.
----- Gary Liu
EXECUTIVE DEPUTY DIRECTOR OF THE CHINA EUROPE INTERNATIONAL BUSINESS SCHOOL LUJIAZUI INSTITUTE OF INTERNATION FINANCE
Declines in the manufacturing Purchasing Managers Index since December reflect an economic slowdown that continued through March 2014. While economic news out of the United States and Europe continues to be largely positive, the recovery in global demand growth - which is still very important to China's cycle - has remained tepid so far. Meanwhile, domestic economic activity slowed across the board in early 2014.
Despite the weak start to the year, we remain relatively constructive on China's economic growth outlook for this year. We continue to expect many of China's organic domestic growth drivers to remain in place, notably consumption, urbanization and services. Global demand growth is on a gradually improving trend, which will help China's economy this year.
The manufacturing sector was weak in the first quarter. Further, investment growth decelerated as credit growth shrunk amid a firmer monetary stance, while companies remained reluctant to expand capacity. Growth in real estate investment also cooled.
Other parts of the economy may have been holding up better than manufacturing. Swings in manufacturing growth tend to be more pronounced than those in the services sector. Also, in China, the role of the services sector is increasing because of a changing growth pattern. In 2013, the services sector grew faster than industry, with the difference particularly pronounced in nominal terms because pricing power has also been better in services.
Therefore, the nonmanufacturing PMI held up better in recent months, and that's helped keep the labor market healthy.
The recent government work report and Premier Li Keqiang's recent comments underscore the fact China's leadership still attaches much importance to economic growth. The premier said: "To keep economic growth within a reasonable range is the basic requirement of macroeconomic controls - and it is also the long-term policy orientation."
As to the current outlook and the upshot for policy, we think Li basically confirmed that the government is going to take some measures to support growth. The policy measures he called for include accelerating the construction of key investment projects, in particular railways, highways and water projects in the central and western regions. Another facet is supporting the construction of affordable housing. This does not mean a major, or high-profile, stimulus plan, because these projects are already in China's medium-term plans.
But the call to accelerate them does matter, nonetheless, in terms of what it means for the macroeconomic policy stance.
In response to the economic data released so far, and taking note of the global trade trajectory, we've lowered our GDP growth estimate for the first quarter significantly.
We also slightly lowered the figure for the second quarter, which also affected the full-year GDP growth projection.
We now project GDP growth to have declined from 7.7 percent in the fourth quarter of 2013 to 7.5 percent in the first quarter this year, then to edge up to 7.6 percent in the second quarter.
Our forecast is 7.7 percent for the year as a whole.
How this growth will materialize in terms of organic growth and policy dynamics is more important than the numbers themselves, and the evolution of macroeconomic policy is key here.
We think that it would not be necessary or recommended to pursue expansionary policies even if GDP growth threatens to falls to 6.5 to 7 percent, given healthy labor market trends.
CHIEF ECONOMIST IN CHINA AT ROYAL BANK OF SCOTLAND PLC
Our estimate of first-quarter growth is 7.2 percent. China's slowdown is not a big surprise for me, as indicators at the beginning of the year pointed to a slowdown. And there are no signs of a significant rise in momentum.
The heavy industry and property sectors. China's economy largely relied on these sectors in the past decade, so we can understand how big the impact is if these industries slow down. The government will encourage the development of the services industry.
We don't think there will be a big stimulus. Pro-growth policies, if any, will be very small and targeted, which will help to moderate the slowdown. Those policies aren't likely to turn the trend around.
We expect economic growth to stabilize at about 7.2 to 7.5 percent.
Reforms such as interest rate liberalization and cleaning up banks' bad debt will be carried out in the foreseeable future.
----- Zhou Hao
CHINA ECONOMIST WITH AUSTRALIA AND NEWZEALAND BANKING GROUP LTD
The GDP growth rate for the first quarter, I believe, was probably less than 7.5 percent. Major indicators for economic growth, such as the purchasing managers' indexes and the Producer Price Index, all pointed to weaker growth. The rate is within our expectations.
The 7.5 percent growth target for 2014 could be the ceiling instead of the bottom line.
On the demand side, real estate and consumption will be seriously affected during the economic slowdown. On the supply side, steel, nonferrous metals, construction materials and cement will all be affected if economic growth slows.
This challenging period, however, will provide opportunities for emerging industries such as e-commerce and Internet finance. Fierce competition in the market will lead to more innovation in the market. Only innovative companies will survive.
Given the current level of economic growth, I don't think the government needs to launch a stimulus to boost the economy. Growth of 7 percent, or even 6.5 percent, should be tolerable to achieve economic restructuring for quality growth. Slower growth is a necessary cost to achieve more sustainable long-term growth.
Moreover, the real effect of the traditional stimulus measures is weakening. It's questionable whether they can boost the economy like they did previously.
Second-quarter GDP growth will be better than in the first quarter, partly because of the continued economic recovery in the United States and European Union. But uncertainties in the emerging markets should not be neglected.
On the government side, I think local governments could cut some taxes, mainly on business income. They can also do more to reduce administrative charges.
----- Wang Haifeng
DIRECTOR OF THE INSTITUDE FOR INTERNATIONAL ECONOMIC RESEARCH, WHICH IS UNDER THE NATIONAL DEVELOPMENT AND REFORM COMMISSION
We can expect a slowdown by looking at key economic indicators released in January and February. Many data have reached their nadir, even lower than those in 2009, in the aftermath of the financial crisis. So it is imperative that we pay serious attention to the downward trend.
One major factor dragging down growth is the changing momentum for economic development. China is in the process of shifting from the pure pursuit of GDP to rebalancing through systematic reforms. And such a shift is gradual and painful, because the ongoing anti-corruption campaign has in part contained and repressed investment. In general, local governments are giving cold shoulders to the current reforms.
Since the stagnation is largely triggered by an investment slump, industries related to investment are set to
the most affected. Steel, cement and real estate are among the most vulnerable sectors. Other relevant industries, such as home appliances and decoration, may also be hit hard.
Consumption or service industries will have better shots against the lackluster economy. Internet, telecommunications and medical care are likely to be the leading countercyclical industries.
In his latest speech, Premier Li Keqiang ruled out a major stimulus to fight short-term dips in growth in the world's second-biggest economy, dashing investors' hopes that the government would aggressively combat a slowdown in activity.
But we can still expect a stimulus that is significantly lower than the 4 trillion yuan injection in 2008. The core will be to enhance the effectiveness of investment. On the one hand, the government should carry out shantytown reconstruction.
The tax burden of small and medium-sized enterprises should be further mitigated to reinvigorate manufacturing and protect labor rights.
The second quarter is definitely critical to China's year-round economic performance. I would expect more substantial stimulus programs to be rolled out so that any continued slump can be effectively contained. Potential opportunities may lie in the relaxation of property-purchase restrictions in second-and third-tier cities in the hope that inelastic demands of homebuyers can be satisfied.
----- Shao Yu
CHIEF ECONOMIST, ORIENT SECURITIES CO LTD