Figure I Changes in real GDP growth rates in China

Transcription

1 Chapter 3 Trends in the Chinese economy Section 1 Macroeconomic trends in China In this section, we will provide an overview of the Chinese economy in 2016, mainly the trends in major economic indicators. In the next section, we will look at structural problems, such as excess production capacity, non-performing loans, and the real estate problem. (1) GDP The real GDP growth rate in 2016 declined from the previous year to 6.7% (Figure I-3-1-1). A comparison of contribution to GDP growth by item shows that net exports made a greater negative contribution than in the previous year, suggesting that the growth was led mainly by domestic demand. Among domestic demand components, investment made a smaller contribution than in the previous year, while consumption made a greater contribution, indicating a shift of the growth engine from investment to consumption. On a quarterly basis, the real GDP growth rate in the first quarter of 2017 rose for the second consecutive quarter. Figure I Changes in real GDP growth rates in China Notes: This figure shows growth rates alone since no item-based breakdown of the quarterly demand by has been released. In 2016, the nominal GDP growth rate accelerated from the previous year, and in the first quarter of 2017, the growth rate was high at 11.8% (Figure I-3-1-2). A significant factor behind the high growth is that the deflator shifted to positive growth, causing the nominal growth rate to continue rising, as a result of an improvement in the secondary industry, in which prices had been sluggish because of the excess overcapacity problem, which will be discussed in Section In addition, the 89 Prices (deflator) show volatile movements in the primary industry as well, and this is presumably 164

2 tertiary industry continued to record high growth in both nominal and real terms. Figure I Changes in real GDP growth rates and deflator in China Note: Deflator is counted backward as shown in the following formula as the Chinese government has not reported it: Deflator (price volatility) = nominal volatility / real volatility On the other hand, there were regional disparities. The growth rate remained low in the Northeast and North China regions, including Liaoning Province, where negative growth was recorded in 2016, and Shanxi Province, where the economy was affected by the excess production capacity problem (Figure I-3-1-3). because the prices of agricultural products are prone to be affected by weather conditions. 165

3 Figure I Real GDP growth rates by region in China (2016) Note: The map is an approximate map. (2) Consumption Looking at changes in retail sales of social consumer goods as a consumption indicator, we see that the sales recorded strong growth of 10.4% in the whole of 2016 despite month-to-month fluctuations. In particular, internet sales, which account for around 10% of overall retail sales, recorded steep growth of 26.2% compared with the previous year (Figure I-3-1-4). 166

4 Figure I Changes in growth rates of retail sales in China (year-on-year rates) Notes: The growth rate of internet sales includes those for sales of service. Regarding retail sales by product item, foods, clothing and home electric appliances recorded low growth, but automobiles, which account for around 30% of overall retail sales, made a significant contribution by growing as much as 10% compared with the previous year because of a tax reduction for small cars 90,91 (Figures I and I-3-1-6). In early 2017, the growth rate of automobile sales slowed down compared with 2016, as the margin of the tax reduction for cars was halved. 90 The automobile acquisition tax rate for small cars, or cars with engine displacement of 1,600 c.c. or less, was lowered from 10% to 5%.The tax relief was implemented in October 2015 and was scheduled to expire in December However, in consideration of the risk of sales falling back in reaction, the tax relief was extended until December 2017, although the margin of the tax reduction was reduced from 5% to 2.5% (the tax rate was 7.5%, down from the original rate of 10%). There is also the view that the decline in the growth rate of automobile sales in early 2017 represented relative firmness given the initially-feared sales fall. 91 On the other hand, sales of sport utility vehicles (SUVs) grew more than sales of small cars, to which the tax reduction was applied, in terms of volume, and this may be evidence of a shift in consumers preference toward more luxurious products. For example, in 2016, the sales growth rate for SUVs was around 44% in terms of volume compared with around 21% for small cars (with engine displacement of 1,600 cc or less). 167

5 Figure I Composition of retail sales by major product item in China (2016) Note: Major items are indicated. Figure I Growth rates of retail sales by product item in China Notes: Growth rates of all items show the aggregated results targeting companies with large sales subject to the item-based statistics. These rates do not always correspond to the growth of overall retail sales that covers smaller companies. 168

6 (3) Investment Although the growth in fixed asset investments continued to slow down for a long period of time, the growth rate stopped declining around the middle of 2016 and has remained almost flat against the backdrop of governmental infrastructure investment and other measures (Figure I-3-1-7). Since the beginning of 2017, the growth rate has been rising again, led by infrastructure investment and other factors. Figure I Growth rates of fixed asset investments in China (year-to-date total/year-on-year rates) Note: Fixed asset investments are published as the accumulated amount from January. The growth in investments by the private sector declined steeply in 2016 (Figure I-3-1-8). On the other hand, as infrastructure building continued to record high growth due to policy support (Table I-3-1-9), investments by state-owned enterprises, which are said to be at an advantage in receiving orders for public works, underpinned the overall fixed asset investments. In the second half of 2016, infrastructure and real estate investments by the private sector began to increase, so the growth in investments by the private sector also stopped declining and showed signs of recovery. 169

7 Figure I Growth rates of fixed asset investments and private investments in China (year-to-date total/year-on-year rates) Note: Fixed asset investments are published as the accumulated amount from January. Table I Fixed asset investments by major industry in China (year-to-date total/year-on-year rates) (Unit:%) Mining Manufacturing Infrastructure (4) Trade Concerning trade in 2016, the value of both exports and imports declined from the previous year. While exports recorded a larger decrease than in the previous year, imports registered a smaller decline, and as a result, the trade surplus shrank. On the other hand, on a monthly basis, in 2016 through early 2017, the negative growth rate of exports and imports turned positive in line with the global economic recovery (Figure I ). 170

8 Figure I Growth rates of imports and exports in China (year-on-year rates) Notes: This figure shows the total value from January to February to exclude the impact caused by the annual shift of the Lunar New Year period. Source: General Administration of Customs, CEIC database. By product item, the growth in exports of electrical machinery turned negative in 2016 while the growth in exports of general machinery remained negative. Concerning imports, mineral fuels and ore recorded smaller negative growth due to a recovery in resource prices (Figure I ). Figure I Changes in contribution levels of imports and exports by product item in China Source: Global Trade Atlas. 171

9 (5) Stock prices and economic sentiment In 2016, trading was suspended on the Shanghai stock exchange at the beginning of the year as a stock price plunge triggered a circuit breaker. Stock prices continued to decline for a while but have been on a moderate uptrend since around March (Figure I ). Figure I Changes in the Shanghai Composite Index Source: CEIC database. Shanghai Stock Exchange. In 2016, economic sentiment, as measured by the manufacturing Purchasing Managers Index (PMI), surpassed the boom or bust line of 50 in the second half of the year. As for changes in the indicators for major items, in the second half of 2016, the indicators for production and new orders grew and the indicator for new export orders also improved. By company size, the PMI rose mainly for large companies, but economic sentiment remained weak at small and medium-sized companies (Figure I ). 172

10 Figure I Changes in Purchasing Managers Index (PMI) in China Notes: 1. The business conditions DI in a survey targeting purchasing managers of companies shows 50 as an economic outlook branch point. 2. PMI is calculated based on five indices, e.g., new orders received and production, but in this survey, respondents answered additional questionnaires, such as new orders for export received. (6) Policy targets for 2016 and 2017 and achievements In 2016, the targets for the real GDP growth rate and other items were achieved due to the effects of economic support measures (Table I ). However, although the retail sales growth was almost in line with the target, fixed asset investments fell short of the target. In 2017, whereas the targets for such items as real GDP, fixed asset investments and retail sales were set at lower levels than in 2016, the target for the number of newly employed people was raised, indicating the emphasis placed on employment. While China maintained a prudent and neutral monetary policy, it slightly lowered the money supply target due to cautiousness about financial risk and an asset bubble. The targets for the budget deficit and infrastructure investments were set at levels similar to the previous year s targets, indicating that China plans to continue economic support measures. In 2017, China is showing the stance of seeking to stabilize economic growth while continuing economic support measures ahead of the once-in-five-years Communist Party Congress scheduled for autumn. China has announced a policy of resolving structural problems such as excess production capacity, excess debts and excess real estate inventories and promoting the sophistication of the economy through deepening of reform, expansion of domestic demand, and innovation (Table I ). 173

11 Table I Major economic targets in China Target Result Target GDP growth rate 6.7% 6.7% Around 6.5% Consumer price 2.0% 2.0% Around 3% Fixed assets investment (nominal) 7.9% 7.9% Around 9% Total amount of retail sales of social consumer goods 10.4% 10.4% Around 10% (nominal) Imports and exports (nominal) 0.9% 0.9% Level of fiscal deficit (ratio to GDP) Money supply (ratio to the previous year) Social loan amount (year-on-year) Number of newly employed persons in urban areas Registered unemployment rate in urban areas Infrastructure investment Ratio to GDP 3% ( trillion yuan) Ratio to GDP 3% ( trillion yuan) Ratio to GDP ( trillion yuan) 11.3% 11.3% Around 12% - - Around 12% million million Over 11 million 4.02% 4.02% Within 4.5% Railway: bl. yuan Road: trillion yuan Railway: bl. yuan Road: trillion yuan Railway: over 800 bl. yuan Roads and water channels: over trillion yuan Central budget frame: bl. yuan Source: Government Activity Report and the Report on Action Plan for People s Living and Social Development (National People's Congress of China), the National Bureau of Statistics of China, and the CEIC database. Table I Fields on which China placed emphasis in Promote a policy three resolutions, one reduction, and one reinforcement Remove excess production capacity, real-estate inventories, and excess debts; reduce company costs; reinforce vulnerable elements in society, such as the issue of poverty. 2. Enrich reforms Simplify administrative procedures and the value added tax system; watch out for financial risks; advance the reform of state-own companies; relax conditions for the non-public ownership economy to enter markets 3. Further bring out the potential of domestic demand Develop service and quality products; act against counterfeit products; launch investment projects; enrich preferential treatment measures under the Public-Private Partnershi p (PPP) policy 4. Shift and enhance economic patterns through innovations 174

12 Construct science and technology infrastructures; support emerging industries by reducing communication charges and other measures; support the existing industries by IoT and other means; support start-ups 5. Develop agricultural fields and encourage farmers to gain more income Steadily develop agricultural fields and encourage farmers to sustainably gain more income 6. Expand the open-to-the world policy Promote the One Belt, One Road initiatives through holding high-level forums; further relax the conditions for inward foreign direct investment; promote free trade and investments 7. Promote ecology and environmental protection Shift heating sources from coal to electricity or gas; take thorough actions to encourage factories to meet environmental standards; and take thorough actions to encourage car companies to meet emission standards 8. Improve the securement of people s life quality Enhance medical and insurance services to meet the two-child policy; secure the safe management of food and medical products; provide support measures for pensioners and people facing life difficulties 9. Enhance the government Take actions to encourage staff to execute duty under laws; enrich actions against corruption Source: Government Activity Report (National People's Congress of China). (7) China s development strategy (industrial sophistication, innovation and overseas expansion) (A) Change in the industrial structure As exemplified by the slowdown of the growth of the manufacturing industry due to such factors as excess production capacity, the economic center of gravity in China is shifting from the primary and secondary industries (e.g. manufacturing) to the tertiary industry (services industry) in terms of the share of GDP and the number of workers) (Figure I ). 175

13 Figure I Changes in the industrial structure in China Source: National Bureau of Statistics of the People s Republic of China, Ministry of Human Resources and Social Security of the People s Republic of China and CEIC database. Source: National Bureau of Statistics of the People s Republic of China, Ministry of Human Resources and Social Security of the People s Republic of China and CEIC database. 176

14 (B) Research and development, and innovation In addition, China aims to achieve industrial sophistication within the manufacturing industry through innovation and research and development. For example, the ratio of research and development expenditure to GDP is rising to a level close to the ratios in major advanced countries (Figure Ⅰ ). Figure I Ratio of R&D expenditures to GDP in major countries Notes: According to the materials submitted by the National People's Congress, the ratio of R&D expenditures to GDP in 2016 in China was reported to be 2.08%. Source: OECD "Main Science and Technology Indicators". An international comparison of the level of innovation activity in China based on an indicator published by the World Intellectual Property Organization shows that the country has already reached a level close to the levels in G-7 and other advanced countries (Table I ). Looking at the patent trend as an indicator of the achievements of research and development activities, we see that the number of patent applications filed by China based on the Patent Cooperation Treaty has been increasing rapidly, and in 2016, the country was No. 3 in the rankings of countries (Figure I ). Furthermore, Chinese IT equipment makers were ranked first and second in terms of patent applications in the rankings of companies. 177

15 Table I International comparison of innovation ability Rank Country Rank in the Rank in the Rank Country previous year previous year 1 Switzerland 1 14 Hong Kong 11 2 Sweden 3 15 Canada 16 3 UK 2 16 Japan 19 4 US 5 17 New Zealand 15 5 Finland 6 18 France 21 6 Singapore 7 19 Australia 17 7 Ireland 8 20 Austria 18 8 Denmark Israel 22 9 Netherlands 4 22 Norway Germany Belgium ROK Estonia Luxembourg 9 25 China Iceland 13 (29) Italy Notes: This table shows the top 25 countries among 128 according to the Global Innovation Index. The columns in green show G7 countries and China. Source: Global Innovation Index 2016 (WIPO, etc.). Figure I Number of filed international patent applications Notes: These figures show the number of international applications filed under the Patent Cooperation Treaty. Source: Press releases of the World Intellectual Property Organization (WIPO). 178

16 Notes: These figures show the number of international applications filed under the Patent Cooperation Treaty Source: Press releases of the World Intellectual Property Organization (WIPO). (C) Made in China 2025 Made in China 2025 was announced in 2015 as a strategy aiming to strengthen the manufacturing industry through such measures as promoting innovation and integrating information technology into the manufacturing industry. This strategy is intended to make China a manufacturing powerhouse by 2025, raise the level of the Chinese manufacturing industry to a medium level among manufacturing powerhouses across the world by 2035, and ultimately make China the global leader in the manufacturing industry by 2049, the centenary of China s national foundation (Table I ). The strategy proclaims policy measures including not only promoting innovation and integrating information technology into the manufacturing industry but also improving quality, branding and giving consideration to the environment. 179

17 Table I Made in China 2025 strategy - Three-step strategy First step - strive to turn China into a major manufacturing power by 2025; second step - reach an intermediate level among world manufacturing powers by 2035; third step - become the leader among the world s manufacturing powers by 2049, the centennial of the founding of New China - Nine strategic tasks Improve innovation capability in the manufacturing industry; sophisticated integration of informatization and industrialization; enhance fundamental industrial capabilities; enhance quality and branding; promote green production (environmental conservation-oriented production); develop breakthroughs in major areas (mentioned below); conduct structure adjustment in manufacturing; promote service-oriented manufacturing industry; promote internationalization of manufacturing - Ten prioritized fields Next generation IT; high-end digital control machine tools and robots; aerospace and aeronautic equipment; oceanographic engineering equipment and high-technology shipping; advanced rail transportation equipment; energy efficient and new energy automobiles; electric power equipment; agricultural machinery equipment; new materials; bio-pharmaceuticals and high-performance medical equipment Source: Reports issued by think tanks. (D) New Silk Road (One Belt, One Road) initiative China is advocating the New Silk Road (One Belt, One Road) initiative, which draws inspiration from the ancient Silk Road. This initiative aims to expand flows of people, goods, funds and information by developing infrastructure, including roads, railways, ports and communication networks, and create a vast economic area stretching from China to Europe (Table I and Figure I ). 92 No definition has been set for countries which may participate in the initiative, and since it proposed the initiative, China has been calling for various countries to join it. In May 2017, a high-level forum was held in Beijing, with relevant countries invited to attend it. 92 During his visit to Kazakhstan in September 2013, Chinese President Xi Jinping proposed the New Silk Road Economic Belt initiative (land route), and in his speech at Indonesia s parliament in October of the same year, he proposed the 21st Century Maritime Silk Road initiative (maritime route). China collectively calls the two silk road plans the New Silk Road (One Belt, One Road) initiative. 180

18 Table I Target countries of the One Belt, One Road initiative Northeast Asia Russia, Mongolia Singapore, Indonesia, Malaysia, Thailand, Vietnam, Philippines, South-East Asia Cambodia, Myanmar, Laos, East Timor South Asia India, Pakistan, Sri Lanka, Bangladesh, Nepal, Malvern, Bhutan United Arab Emirates, Kuwait, Turkey, Qatar, Oman, Lebanon, West Asia Saudi Arabia, Bahrain, Israel, Yemen, Egypt, Iran, Jordan, Syria, North Africa Iraq, Afghanistan, Pakistan, Azerbaijan, Georgia (former Georgia), Armenia Poland, Albania, Estonia, Lithuania, Slovenia, Bulgaria, Czech Republic, Hungary, Macedonia, Serbia, Romania, Slovakia, Central and Eastern Europe Croatia, Latvia, Bosnia-Herzegovina, Montenegro, Ukraine, Belarus, Moldova Central Asia Kazakhstan, Kyrgyzstan, Turkmenistan, Tajikistan, Uzbekistan Source: State Information Center, China. Figure I Map of the One Belt, One Road initiative Source: China Central Television (CCTV; March 8, 2015). In the area covered by the One Belt, One Road initiative, infrastructure projects are ongoing with the participation of Chinese companies, so in addition to improving infrastructure in partner countries, exporting steel and other products being produced in excessive amounts in China is presumed to be an economic significance of the initiative. Some people have pointed out that the initiative is effective in promoting economic development not only in countries in the area but also in China s inland region. Moreover, over the long term, the initiative aims to achieve development in regions located along the developed infrastructure and strengthen the regions relationship with China. 181

19 The promotion of the project is financially supported by existing financial institutions such as the Export-Import Bank of China and China Development Bank and the newly established Silk Road Fund. China also played the leading role in establishing the Asian Infrastructure Investment Bank (AIIB) in order to promote infrastructure investments in Asia. 182