GDP target in sight, but barely
Amid a continued slowdown, the nation's full-year 7.5-percent growth target can be achieved, but it will take an effort.
In view of the current situation, growth in the second half of this year is likely to continue slowing. Without a moderate adjustment in policies, and fully relying on the present economic momentum, there will be some difficulty in achieving the growth target.
Real external demand will slightly improve in the second half, but to a limited degree. Export growth in the second half will be a little faster than in the second quarter.
It is possible for exports to slightly pick up in the second half, reflecting moderate expansion in overseas demand and base effects compared with the second half of last year.
Fixed-asset investment growth will be under downward pressure in the second half of 2013 as infrastructure investment recedes and real estate investment rises and then declines.
Investment in manufacturing will continue its adjustment period for another year or two. For the full year, we will see fixed-asset investment grow about 20 percent.
Consumption growth in the second half will remain weak and the whole year will see total retail sales rise 12.8 percent year-on-year. Sales of housing-related products and vehicles will see quite good growth in the second half.
The consumer price index, which gauges consumer inflation, will rise 2.5 percent year-on-year in 2013 while the producer price index, which measures wholesale inflation, will fall 1.7 percent.
I think the major problems in China's current economic situation are as follows.
First, the financial sector is remarkably far from supporting real economic growth. A sluggish economy requires more money to achieve similar growth, while China's interest rates, which are yet to be marketized, offer wide scope for risk-free arbitrage.
Large companies get preferential loans and re-lend the money or put it into financial products, which has expanded the total social financing scale.
Some credit in recent years flowed into industries with excess capacity or public services facing funding shortages, leaving rollovers as a solution to extend the debts.
Second among China's problems is that industrial overcapacity is spreading into an increasing number of industries.
Third, housing prices keep rising.
Fourth, fiscal pressure keeps mounting. The growth of fiscal revenue has eased and may miss the full-year target.
A new stimulus package should be avoided and the slowest acceptable growth pace should be maintained, serving to produce economic restructuring and growth in the medium and long term.
As macroeconomic policies are kept stable, market-oriented reforms and the decentralization of government power should be further advanced to create the internal dynamic for economic growth.
First comes stabilizing investment growth and ensuring continued funding for projects in progress. While avoiding further stimulus, we should try to ensure capital for projects that have begun and avoid "investment stall" as 20-percent or higher full-year investment growth will essentially support the 7.5-percent GDP growth target.
Second, monetary policy should remain steady while liquidity should return to neutral. The yuan's pace of appreciation should not be too fast. Liquidity and money supply growth should return to a neutral stance with the broad money supply (M2) expanding 14 to 15 percent.
Third, speed up interest-rate marketization and reduce financing costs while strengthening liquidity monitoring and crisis management.
Fourth, welcome advancing market-oriented adjustment of the real estate sector, including increasing supply in first-tier or large cities and scrapping the supply-tightening policies for restoring house prices by market means.
Fifth, advance reforms to effectively resolve overcapacity. Reasonable industrial planning is necessary for dispelling overcapacity. More opportunities should be created for manufacturing transformation, especially through opening up the monopolized and regulated fields.
Chief economist with CITIC Securities Co Ltd