Hu Kaihong:

Ladies and gentlemen, good morning! Welcome to the press conference of the State Council Information Office. Today, we are honored to have Sheng Laiyun, spokesperson of the National Bureau of Statistics (NBS), to give an outline of the performance of the Chinese economy during the first quarter of 2016. He will also take your questions. Now, I give the floor to Mr. Sheng.

Sheng Laiyun:

Thank you very much, chairperson. Good morning, friends! I am happy to brief you on the major national economic indices in the first quarter and then answer your questions.

Since the beginning of 2016, facing a complicated international situation and mounting downward pressure of economic development, the Central Committee of the Communist Party of China (CPC) and the State Council, together with all of society, have adapted to and led the "New Normal", and adopted scientific measures to stabilize economic growth, enhance restructuring, benefit people and control risks. They have stepped up efforts to promote structural reform on the supply side while achieving an appropriate expansion of aggregate demand. As a result, the national economy continued to be stable and move in a positive direction, with structural adjustment deepened, new impetus accumulated and positive changes shown on major indicators. The national economy has indeed enjoyed a good start to the year.

According to the preliminary estimates, GDP in the first quarter of 2016 reached 15.8526 trillion yuan (US$2.4439 trillion), a year-on-year increase of 6.7 percent at comparable prices. Added value of the primary industry was 880.3 billion yuan, up 2.9 percent year-on-year; that of the secondary industry was 5.951 trillion yuan, up 5.8 percent; and that of the tertiary industry was 9.0214 trillion yuan, up 7.6 percent. Calculated at 2015 prices, GDP in the first quarter increased 985.1 billion yuan year-on-year, 22.2 billion yuan more than in the same period last year.

1. Agricultural production remained stable.

According to the planting intentions survey conducted among more than 110,000 rural households, the planting area for rice would rise 0.3 percent and wheat 0.4 percent; planting area for corn would went down 0.9 percent and cotton 18.8 percent. In the first quarter, the total output of pork, beef, mutton and poultry reached 22.44 million tons, a fall of 3.1 percent year-on-year. The output of pork was 14.66 million tons, down 5.9 percent.

2. Stabilized industrial production growth.

In the first quarter, the total value added of industrial enterprises above designated size rose 5.8 percent year-on-year at comparable prices, 0.3 percentage points lower than that for the entire year of 2015, and 0.4 percentage points higher compared to that for the first two months. An analysis by types of ownership showed the value added of state holding enterprises declined by 0.1 percent year-on-year; collective enterprises grew by 2.4 percent; share-holding enterprises rose 7.2 percent; there was a 3.3 percent growth for enterprises funded by foreign investors or investors from Hong Kong, Macao and Taiwan. The added value of the mining industry rose 2.1 percent year-on-year; manufacturing increased 6.5 percent and the production and supply of electricity, heat, gas and water were up 2.6 percent. Industrial development has been moving towards the medium-high level. In the first quarter, the added value of high-tech industry and the equipment manufacturing industry grew by 9.2 percent and 7.5 percent respectively, or 3.4 percentage points and 1.7 percentage points higher than that of industrial enterprises above designated size, accounting for 12.1 percent and 32.4 percent of total added value of industrial enterprises above designated size, 1.1 percentage points and 1.7 percentage points higher than in the same period of 2015. In the first quarter, the sales-output ratio of industrial enterprises above designated size was 97.3 percent. Their export delivery value reached 2.5439 trillion yuan, down 3.0 percent year-on-year. In March, the total value added of the industrial enterprises above designated size rose 6.8 percent year-on-year, and 0.64 percent month-on-month.

In the first two months of this year, the total profits made by industrial enterprises above designated size stood at 780.7 billion yuan, up 4.8 percent year-on-year. The costs per hundred-yuan turnover of their primary activities reached 85.26 yuan, and the profit rate from these primary activities was 5.12 percent.

3. Steady, moderate growth in fixed assets investment.

In the first quarter, investment in fixed assets (excluding rural households) was 8.5843 trillion yuan, a nominal year-on-year growth of 10.7 percent or a real growth of 13.8 percent after deducting price factors. The growth rate was 0.7 percentage points higher than that for the entire year of 2015, and 0.5 percentage points higher than that for the first two months of this year. Of the total, the investment by state holding enterprises reached 2.912 trillion yuan, an increase of 23.3 percent; private investment reached 5.3197 trillion yuan, up 5.7 percent, accounting for 62.0 percent of the total investment. Primary industry investment reached 194.9 billion yuan, up 25.5 percent year-on-year; that in the secondary industry was 3.3664 trillion yuan, up 7.3 percent; and that in the tertiary industry was 5.023 trillion yuan, up 12.6 percent. The amount in place for investment in the first quarter was 10.925 trillion yuan, 6.4 percent higher year-on-year. Specifically, the State budget increased 16.9 percent, domestic loans grew 13.9 percent, and self-raising funds decreased 0.2 percent; foreign investment was down 25.6 percent. Total planned investment in newly-started projects in the first quarter was 8.1403 trillion yuan, a year-on-year increase of 39.5 percent. In March, the investment in fixed assets (excluding rural households) went up by 0.86 percent month-on-month.

In the first quarter, total investment in real estate development was 1.7677 trillion yuan, a nominal year-on-year growth of 6.2 percent, or a real growth of 9.1 percent after deducting price factors. The growth rate was 5.2 percentage points higher than that for the entire year of 2015, or 3.2 percentage points higher than that for the first two months of this year. Of the total, the investment in residential buildings rose 4.6 percent. Floor space of houses newly started in the first quarter was 282.81 million square meters, up 19.2 percent year-on-year. Specifically, the floor space of residential buildings started in the first quarter increased by 14.8 percent. The floor space of commercial buildings sold reached 242.99 million square meters, up 33.1 percent year-on-year. Of this total, that of residential buildings rose 35.6 percent. The sales of commercial buildings in the first quarter totaled 1.8524 trillion yuan, up 54.1 percent year-on-year. Of this total, that of residential buildings grew by 60.3 percent. In the first quarter of this year, the land space purchased by real estate development enterprises was 35.77 million square meters, down 11.7 percent year-on-year. By the end of March, the floor space of commercial buildings for sale reached 735.16 million square meters, up 13.1 percent. The funds in place for real estate development enterprises in the first quarter reached 3.1992 trillion yuan, up by 14.7 percent year-on-year.

4. Market sales continued to grow steadily

In the first quarter of 2016, the total retail sales of consumer goods reached 7.8 trillion yuan, a year-on-year nominal increase of 10.3 percent (or 9.7 percent adjusted for inflation), which was 0.4 percentage points lower than the growth throughout the previous year, or 0.1 percentage points higher than that in the first two months of this year. Specifically, retail sales of the units above the designated size stood at 3.46 trillion yuan, up by 8.0 percent. In terms of different areas, retail sales in urban areas reached 6.69 trillion yuan, up by 10.2 percent, and in rural areas stood at 1.11 trillion yuan, up by 11.0 percent. Grouped by consumption patterns, the total income of the catering industry was 830.2 billion yuan, up by 11.3 percent year-on-year; the retail sales of goods were 6.97 trillion yuan, up by 10.2 percent. In particular, the retail sales of units above the designated size reached 3.26 trillion yuan, up by 8.0 percent. In March, the total retail sales of consumer goods saw a nominal growth of 10.5 percent year-on-year (or a growth of 9.7 percent adjusted for inflation), or 0.85 percent month-on-month.

In the first quarter of 2016, the online retail sales reached 1.03 trillion yuan, up by 27.8 percent year-on-year. Specifically, the online retail sales of goods registered 824.1 billion yuan, an increase of 25.9 percent, accounting for 10.6 percent of the total retail sales of consumer goods.

5. Total import and export volume dropped

The total volume of imports and exports in the first quarter of 2016 was 5.21 trillion yuan, a year-on-year decrease of 5.9 percent. Of this total, exports represented 3.01 trillion yuan, down by 4.2 percent; and the imports were 2.2 trillion yuan, down by 8.2 percent. The trade surplus was 810.2 billion yuan. In March, the total volume of imports and exports was 1.91 trillion yuan, up by 8.6 percent year-on-year. Of this total, exports were 1.05 trillion yuan, up by 18.7 percent; the imports were 855.5 billion yuan, down by 1.7 percent.

6. Consumer price grew moderately

In the first quarter of 2016, the consumer price went up by 2.1 percent year-on-year. Specifically, the price went up by 2.1 percent in urban areas and 2.0 percent in rural areas. Grouped by commodity categories, prices for food, tobacco and liquor grew by 5.1 percent; clothing was up by 1.7 percent. Housing went up by 1.3 percent and articles and services for daily use grew by 0.4 percent; transportation and communication decreased by 2.0 percent. Education, culture and recreation grew by 1.3 percent and health care up by 2.9 percent; other articles and services grew by 0.6 percent. In terms of food, tobacco and liquor prices, grain grew by 0.6 percent; pork went up by 24.1 percent and fresh vegetables went up by 27.3 percent. In March, the consumer price went up by 2.3 percent year-on-year, or down by 0.4 percent month-on-month. In the first quarter, the producer prices for industrial products dropped by 4.8 percent year-on-year. In March, the prices went down by 4.3 percent year-on-year, or up by 0.5 percent month-on-month. In the first quarter, the purchasing prices for industrial producers went down by 5.8 percent year-on-year. In March, the prices dropped by 5.2 percent year-on-year, or up by 0.3 percent month-on-month.

7. Income grew steadily

In the first quarter of 2016, the national per capita disposable income was 6,619 yuan, a nominal growth of 8.7 percent year-on-year or a real increase of 6.5 percent adjusted for inflation. In terms of permanent residence, the per capita disposable income of urban households was 9,255 yuan, a nominal growth of 8.0 percent year-on-year, or a real growth of 5.8 percent adjusted for inflation. The per capita disposable income of rural residents was 3,578 yuan, up by 9.1 percent nominally, or 7.0 percent in real terms. The per capita income of urban households was 2.59 times that of the rural households, a decrease of 0.02 when compared with the same period during the previous year. The median national per capita disposable income was 5,670 yuan, a nominal increase of 8.7 percent year-on-year. By the end of February, the number of rural migrant workers was 167.99 million, an increase of 4.68 million when compared with the same period last year, up by 2.9 percent. The average monthly income of migrant workers was 3,273 yuan, up by 9.1 percent year-on-year.

8. Structural adjustment accelerated

The industrial structure was further optimized. In the first quarter, the value added to the tertiary industry accounted for 56.9 percent of the GDP, which was 2.0 percentage points higher when compared with the figure during the same period last year, and 19.4 percentage points higher than that of the secondary industry. The balance of regional structure was strengthened. The value added of industries above the designated size in the central and western regions increased by 7.0 percent and 7.3 percent respectively year-on-year, which were 0.7 percentage points and 1.0 percentage points higher than that in the eastern region respectively. The investment in fixed assets (excluding rural households) in the central and western regions grew by 13.3 percent and 13.2 percent respectively, which were respectively 2.3 percentage points and 2.2 percentage points higher than that of the eastern region. Energy conservation and consumption reduction continued to make headway. In the first quarter, the unit energy consumption against GDP decreased by 5.3 percent year-on-year.

As a whole, the national economy had a solid start in the first quarter of 2016 as a series of policies and measures were adopted by the CPC Central Committee and the State Council. A number of major indicators showed positive change and the trend of steady growth continues. However, we must be aware that the pains of structural adjustment remain as China is at a critical stage for economic transformation and upgrading as well as replacing old drivers of growth with new ones, and the downward economic pressure cannot be ignored. For the next step, in accordance with the decisions of the Central Economic Work Conference and the general arrangements in the Report on the Work of the Government, we must establish the concepts of innovative, coordinated, green, open and shared development, adhere to the guidelines of stable macro-policy, well-targeted industrial policy, flexible micro-policy, practical reform policy and solid social policy, accelerate the fostering of new driving forces for development, strengthen supply-side structural reform, increase effective demands, release the dividends of policies and consolidate positive changes to ensure that the economy will operate within an appropriate range, maintain a medium-high rate of growth and move towards a medium-high end. By working to achieve all of these goals, we will see a good start in economic and social development during the period covered by the 13th Five-Year Plan.

That is the major economic data for the first quarter. Now I'm ready to take your questions.

Hu Kaihong:

Since we have a number of foreign journalists here today, interpretation will be available throughout the briefing. Now the floor is open for questions.

CCTV:

Just now you mentioned that the gross domestic product (GDP) growth of China in the first quarter of 2016 was 6.7 percent, not only lower than the same period of previous year, but also lower than the fourth quarter of last year. Does this mean a continued economic downturn? Just now you used a phrase "a favorable beginning." Why did you say that? Finally, would you please give us a comprehensive evaluation of the overall economic performance of the first quarter?

Sheng Laiyun:

Thanks you for your questions. In regard to the economic performance of the first quarter of this year, I would like to use four short phrases to summarize it – stable performance, structural optimization, a variety of highlights, and better than expected.

First, why did I say that the overall economic performance was stable? The economic growth rate stood at 6.7 percent in the first quarter, slightly lower than both the first quarter and the fourth quarter of last year, but still running at a reasonable range between 6.5 percent and 7 percent. Calculated in 2015 prices, the GDP in the first quarter increased by 6.7 percent, 22.2 billion yuan more than in the same period of last year. Overall, the economic growth is relatively stable. The figure, compared with international practices either in developed countries or in emerging economies, is considered a relatively high level, maintaining a continuous medium and high growth rate.

Employment is stable as a whole. Statistics from the Ministry of Human Resources and Social Security show that 3.18 million new jobs were created in cities and towns in the first quarter, achieving 31.8 percent of the annual target. The employment rate of March, which hasn't been publicized by the National Bureau of Statistics yet, was slightly higher than that of February according to available statistics, still fluctuating around 5.2 percent. Overall, it is relatively stable.

The first quarter witnessed a moderate rise in prices, with CPI rising by 2.1 percent in both March and February. One of the main reasons for the rise is that the price of foods, namely that of vegetables and pork, rose by a large margin around the Spring Festival. However, the overall rise in prices was comparatively moderate.

Residents' incomes maintained a stable growth in the first quarter, with per capita disposable income increasing by 6.5 percent annually. Based on several indicators involving growth rate, employment, price and income, we can initially conclude that the performance is relatively stable and still running within a reasonable range.

Second is about structural optimization. The industrial structure has been further optimized. Three industries continued to maintain rapid growth, with the tertiary industrial added value increasing by 7.6 percent, the value added of the tertiary industry accounted for 56.9 percent of the GDP, 2 percentage points higher when compared with that of the same period of last year. The structure of supply and demand was also further optimized, particularly in that of investment and consumption. Both high-tech industrial investment and service industrial investment maintained a growth rate of 3 percentage points higher than overall investment, and the proportion also continued to rise, while the proportion of high energy consumption investment continued to decline.

From the perspective of consumption upgrading, residents' consumption spending has maintained a rapid growth in the fields of housing, transportation, education, pension, social security, health and tourism, with more spending going towards medium- and high-grade products. From these perspectives, the economic structure continues to improve.

Third is about a variety of highlights. This mainly refers to the rapid development of the new economy, the replacement of old drivers of growth with new ones, and the positive momentum encouraging people to pursue business creatively and pushing forward innovation. Statistics from relevant departments show that more than 10,000 new business entities were created every day. Some other figures and facts also illustrate the progress of technological innovation. In the first quarter, domestic invention patents increased by 55.3 percent. The new economy and new products continued to maintain rapid growth. Strategic emerging industries increased by 10 percent and high-tech industries increased by 9.2 percent in this period. New-energy vehicles continued to maintain a growth rate of more than 80 percent in this period. Medical devices, intelligent electronic products, environmental protection-related equipments and products all maintained rapid growth. The integration of internet, traditional manufacturing industries and the service industry is accelerating. New industrial formats and new approaches towards service are emerging in quick succession. In the first quarter, online retail sales increased by 27.8 percent year-on-year. Although the growth rate was somewhat down, there was still comparatively rapid growth based on the figure 40 percent of previous years. Energy conservation and consumption reduction continued to make new achievements. This means that development is becoming increasingly green.

Fourth, the general condition was better than expected. Positive changes showed on recently released major economic indicators in March and growth rates were generally higher than expected. As for the industrial sector, the growth rate of industrial added value was 5.4 percent in January and February, and 6.8 percent in March, up by 1.4 percentage points. Related electricity consumption and the freight traffic volume also increased by 6 and 4 percentage points respectively during March. The service industry maintained good momentum with its indicator in March reaching 8.3 percent, up by 0.2 percentage points than in January and February. From the perspective of demand, fixed assets investment grew steadily with the growth rates in the first two and three months of this year reaching 10.2 and 10.7 percent respectively, up by 0.5 percentage points. Consumption also grew faster than in the first two months of this year. Export expanded by 18.7 percent in March year on year, compared with previous falls. The surge in export was partly attributed to a fall of 14.6 percent in the same period last year. With regard to price, the producer price index of industrial products grew by 0.5 percent in March month on month, the first positive growth since January in 2014, and the year-on-year declining rate of the PPI has shrunk for three consecutive months. The PMI in the manufacturing industry rose to 50.2 percent in March, above the critical point, after it had been below the line for months. The figure for non-manufacturing industry was 53.8 percent in March, up by 1.1 percentage points on a monthly basis.

All the indicators covering production, demands, prices, physical quantities and expectation indexes are all rebounding and therefore we can conclude that the economy operated better than expected. It was noted that recently, a number of international institutions raised the expected annual growth rates for China's economy, which are all above 6.6 percent. According to a report released by the IMF on April 12, the expected growth rate for the world economy, including that of the US and a number of major economies, was lowered by 0.2 percentage points. For the Chinese economy, the expected growth rate was raised by 0.2 percentage points.

What I've said provide a solid basis to announce that the Chinese economy enjoyed a good start this year as it operated steadily with an optimized structure, fruitful results and a better-than-expected performance. In the first quarter of this year, as the Chinese economy operated smoothly, structural adjustment accelerated and made progress. From the positive changes showed on major indicators in March, our preliminary judgment is that the Chinese economy shows bottoming and stabilizing signs.

That being said, we cannot be over-optimistic as the international environment is complicated with uncertainties and the domestic economy is undergoing a hard restructuring process. In addition, China's real economy is in a predicament and the downward pressure is not neglectable. In the next phase, we need to follow the decisions and deployment made by the CPC Central Committee and the State Council, implement policies conscientiously, step up supply-side structural reform, release the dividends of policies, consolidate positive changes and provide a solid basis for the economic stabilization process. Thank you.

CNR:

Mr. Sheng just introduced a series of macroeconomic data taking a gradual turn for the better. The GDP growth rate fell in the first quarter, dropping by 0.1 percentage point lower than that in the fourth quarter. How do you view the drop? Will the growth rate be the low point this year? Will the tendency of economic development be L-shaped or U-shaped? Is it difficult to realize the objective of a 6.5 percent growth rate?

Sheng Laiyun:

Thank you for your questions. I suppose your questions could be reduced to a singular concern. How should we view the future of China's economic development? Is the growth rate in the first quarter the low point? Will the tendency of economic development be L-shaped, U-shaped or W-shaped? There is much talk about these issues. This discussion doesn't involve any principles, and comes from different perspectives. In the medium or long term, China's economy will be in a gear-changing stage. After the successful gear change, the growth rate may fluctuate near the potential rate for the current period. It may be L-shaped. In the short term, it may be periodically U-shaped or W-shaped by the interference of international factors. The tendency will basically be either L-shaped and U-shaped or W-shaped in the short term. It depends largely on different stages and perspectives.

The issue is very important. I want to emphasize three points.

First, no matter how the economic climate may change, the fundamental factors are critical. We believe that China has the potential and condition to make its economic growth target in the long term. Generally speaking, the goal involves the following aspects. First of all, industrialization and urbanization have not been completed in China. The urbanization rate was 56.1 percent in 2015. On the basis of population through a household register, the rate was less than 40 percent. You know, the rate in developed countries generally exceeds 80 percent. Therefore, urbanization will have broad development trends.

A second point is the large regional gap. We have researched the regional developing index. Preliminary measurements show that central areas were at least five years behind the eastern areas and that the west was at least 10 years behind the east. Over the next five to 10 years, people in the central and western areas will enjoy the measure of infrastructure and standard of those currently living in eastern areas, which also have tremendous potential.

Third, China is in a critical stage of consumption structure upgrading. In 2000, we solved the problem of food and clothing. On a whole, people have reached a stable standard of living. Now, we will transit into becoming a well-off society in a comprehensive way. In the past 15 years, we have made great progress in housing and transportation; the living conditions have markedly improved. In addition, developing and recreational consumption trends, such as tourism, health care, elderly support, insurance, culture, and education, are still making progress. China has strong consumer spending. In the last year, over 100 million Chinese people traveled abroad. This number massively increased during the Spring Festival this year. The consumer potential is tremendous.

Also, China's intelligence dividend is being built up. The portion of the population that has received academic certificates at or above the junior college level is over 110 million, which is equivalent to the population of a large country. If this potential is brought into full play, it will greatly promote entrepreneurship and innovation.

The reform of various systems has brought about great benefits. We have accumulated rich experience during our supply-side reform and the construction of various systems, and we have a great untapped potential. Therefore, China is in a good position and will be able to maintain its economic growth at medium to high rate in the long term.

Second, as Chinese economy is shifting gears, the economic structure is undergoing fundamental and positive changes to achieve increased stability and coordination. This pattern emerged as China entered what is known as the "new normal", and this transition, initiated 25 quarters ago, is still underway in exploring potential productivity gains in this stage of development. In this process, I think one should not only pay attention to China's growth rate, but also to its economic structure, as well as the quality of its growth.

Regarding industrial structure, for the first time, the tertiary industry accounted for more than half of GDP last year. In the future, being replaced by the service sector, the manufacturing sector will no longer play its traditional dominant role in GDP growth. This represents a significant industrial upgrading.

In the past, people kept worrying about the structure of demand in China in that we excessively relied on investment and exports to support our economy. However, in recent years, there's been an obvious change that, as the government voluntarily took the leading role and the market enforced economic changes, China's structure of demand underwent fundamental change. China's growth in recent years has been boosted mainly by internal demand. In 2015, consumption contributed more than 60 percent of China's growth, a trend that remained in the first quarter of this year.

The improvement in the quality of economic growth is not only reflected in the drop of energy intensity per unit of GDP, but also in the stable development of the economic indices related to people's livelihood. Rapid development of the service sector has created new jobs, largely stabilized social employment and produced a steady rise in incomes. This is why China's growth rate didn't really fluctuate recently as much as people may have expected. Internal structural change explains this. We used to keep our eyes on GDP growth, and that was right, because in the ascending stage of industrialization, accumulating wealth should be indeed given top priority.

Now, however, we have entered a new development era, so a sheer focus on growth rate is far less than enough. Structural changes for achieving growth, and the coordination and quality of growth should also be highly valued, so as to grip the overall trend of China's economic development. Whether the growth rate assumes an L-shaped or U-shaped curve, If you cannot comprehend this, you won't be able to objectively evaluate if the Chinese growth rate assumes an L-shaped or U-shaped curve.

In March, China's economy indeed exhibited positive changes, outperforming expectations, thanks to a number of factors. Firstly, the previous policies on stabilizing growth, changing structures and raising people's livelihood were producing positive effects. Since last year, the real estate market has improved with a boost in related investment and consumption. Supply-side structural reform has been effective in that it helped balance the demand-supply relationship and improved the market's expectations. In addition, international factors were also highly important. International trade rebounded in March. The BDI climbed for 15 consecutive days, closing at 597 yesterday, a boost for export growth in March. Notably, the recovery was a comprehensive one, rather than a gain of any one index, representing a recovery ranging from production to demand, price, and expectations. The signal of recovery is very significant, because although it is based on a single month's change, and one is unable predict the major trend behind it, yet it remains a positive signal that will be the foundation for future stability. We'll have to watch for some time to see if true stability will emerge.

TASS news agency:

What about China's direct investment in Russia during the first quarter? And can you give an introduction to Chinese industrial performance in the first quarter?

Sheng Laiyun:

We do not have data on China's direct investment in Russia and suggest you consult the relevant departments.

We will release the latest data on April 27 on the economic performance of industry-based enterprises, including their incomes and inventory changes. The data comes primarily from enterprises' financial statements, which are usually settled in mid-April for the first quarter. So we won't release the data today. In January and February, the growth of enterprise profits has gone from negative to positive. Profit for industry-based enterprises above designated size has decreased by 2.3 percent in the last year; however, we are seeing positive change this year. With a combination of new policies and improvement of market expectations – such as lowering costs, a picking up of production material prices and enhanced management within enterprises – profit for industry-based enterprises above designated size increased by 4.8 percent from January to February this year. Based on other relevant index changes in March, profits in the first quarter will likely be better.

Profit is not the only index for judging the real economy. The real economy is going through a difficult time at present with obvious differentiation. Growth rates and profit margins are high in enterprises that match the industry development direction and the consumption upgrading direction. However, some traditional industries, particularly some with an over-capacity problem, are going through a hard adjustment period. We believe that with further efforts, in particular the policies effecting supply-side structural reform, enterprises are improving.

Economic Daily:

Several days ago, the National Bureau of Statistics (NBS) said in a statement that the consumer price index (CPI) shrank 0.4 percent in March over February, while pork prices jumped by 1.3 percent. But the data is quite different from people's understanding of daily realities. How do you explain such differences?

Sheng Laiyun:

Thanks for your question. I also noticed such a phenomenon, especially after the NBS released the statistics on Apr. 11. Some people thought that the data is lower than they had expected, especially pork prices. From late March until now, pork prices have been climbing continuously, and even setting a new record.

There is no problem with statistics. The reason why people felt there was a difference is because of the time of observation. People may pay more attention to price changes at a particular time, while we watch the change of the average price during a month. Average numbers of a month are used to calculate the CPI. Our CPI investigators check prices six times each month, that is, once every five days; the average of those six numbers will be the price for the month. There's no doubt pork prices changed a lot, especially before and after the Spring Festival. The NBS releases data on food prices in 50 medium and large Chinese cities every 10 days, including pork prices. Take pork haunches as an example:in early February, the price was 31.16 yuan per kilogram; in mid-February, it went down to 30.89 yuan per kilogram; at the end of February, it fell further to 29.97 yuan. The average price in February was 30.67 yuan per kilogram. In early March, the price was 29.79 yuan, mid-March 30.06 yuan and end of March 30.9 yuan. The average price in March was 30.25 yuan, dropping 1.4 percent from the price of February, while pork prices throughout the country were down 1.3 percent. So, the statistic we issued was correct.

Recently, I read some comments on price changes, saying that CPI investigation has conducted through a base rotation change. Actually, we explained this when we published the first quarter's data. According to our statistical system, we conduct base rotation change in regard to our price investigations every five years starting in 2000. In January this year, we did it again. The purpose of the rotation aims to ensure the CPI investigation adheres closely to current structural changes in household consumption, and present the price level more objectively and practically. The latest base rotation features two changes:

Firstly, food classification was changed in line with new standards. Food, tobacco and alcohol are integrated into one category; tea, beverages and dining out are treated as a new category. Due to rising living standards, this kind of consumption accounts for a larger ratio, and we have to investigate the items separately. Compared with previous investigations on food prices, the ratio of food has dropped 3.2 percentage points.

Secondly, new services have been introduced to help consumers, such as those for elders and expenses for keeping pets. The ratio of housing increased 2.2 percentage points, while the ratio of transportation and communication increased 1 percentage point, respectively. The purpose of the investigation is to reflect the consumption structure more rationally. The base rotation won't greatly affect the price level. Based on precise calculations, it won't affect the relative ratio; the impact to year-on-year changes is only 0.08 percentage points, which won't affect the total price level either.

Reuters:

I have two questions. First, will the ongoing supply-side reform directed at overcapacity reduction and deleveraging produce any downward pressure for the country's economy? Second, you have just released the statistics on increased volume in the first quarter over the previous quarter. Is it possible to give us its growth rate? And can you give us some statistics on consumption, capital formation and contribution of imports and exports to growth.

Sheng Laiyun:

Thanks for your question. The first one is about the impact of supply-side reform on economic growth. And it is also something of widespread public concern. Theoretically, this reform is a fundamental solution to China's structural problems. The Central Committee of the Communist Party of China and the State Council had detailed their plans for the reform during the Central Economic Work Conference as well as on the Government Work Report. They clarified the five tasks of cutting overcapacity and excess inventory, deleveraging, reducing costs, and strengthening points of weakness for 2016, which is considered to be critical year for supply-side reform. All circles have reached a consensus on this issue, which pushes the reform forward while generating clear results. On cutting overcapacity, we have seen many positive results in the steel and coal mining industries, whose productions have decreased by 3.2 percent and 5.3 percent, respectively. With regard to destocking, which mostly targets the real estate sector, the property market has continued to rebound since last year, especially in the first quarter this year when the floor space of commercial buildings registered a 33.1 percent growth in sales. By the end of March, floor space of commercial buildings for sale was 735 million square meters, a significant decrease of 4.15 million meters compared to late February. On deleveraging, debt to assets ratio for industrial enterprises above designated size dropped by 0.1 percent by the end of February, which has brought great optimism. There has also been a considerable effort on the policy side to cut taxes. The costs for per-hundred-yuan turnover of primary activities of the industrial enterprises above designated size reached 85.26 yuan between January and February, a drop of 0.42 yuan compared with last year's average. On strengthening points of weakness, the results are also quite clear as the government has beefed up investment in infrastructure in areas that need strengthening. Fixed-asset investment has rebounded markedly as it registered a nominal year-on-year growth of 10.7 percent in the first quarter, and a 0.5 percentage points increase compared with the first two month of 2016. Investment on infrastructure picked up quite clearly, increasing by 19.6 percent.

Therefore, the general tasks of cutting overcapacity and excess inventory, destocking, reducing costs and strengthening points of weakness have generated many positive results, which are not limited to what I have pointed out just now. Those are all immediate results, and we're expecting more spillover effects. They are not only improving the demand-supply balance in the overall economy but also aiming to resolve its structural problems and revitalize businesses. Their spillover effects will be quite large, which has already been shown by statistics regarding producer prices for industrial products and profits for industrial enterprises. They both picked up in March over the previous month. Other spillover effects rest on reform and market expectations.

Looking from the above perspectives, we need to deepen our understanding on and remain confident in reform. People used to worry about the GDP growth, a possible drop in industrial production and increasing employment pressure resulting from cutting overcapacity. Looking back, facts speak louder than words. The positive results outweigh negative ones. Therefore, we will continue to push supply-side structural reform steadfastly.

As for the issue of GDP calculation in the second and third questions, you have been quite observant. We haven't obtained the GDP data on the changes compared with the precedent period, or that of the contributions from the three major demands – investment, consumption and exports. This GDP figure is a calculation based on the accounting of expenditure, for which many data were necessary. The accounting is not yet finished.

But based on trends, the final consumption expenditure is contributing more to the GDP growth, and trends will likely remain unchanged. Consumption has been stable, government spending is increasing, and the structure of consumption is optimizing, so that consumption is making an increasingly larger contribution to growth. Considering the factual conditions in the first quarter, the service sector accounted for a rising proportion of GDP, so that consumption will make a larger contribution to growth, also. This is the overall trend; it won't change.

The data on changes compared with the precedent period is an innovative and explorative endeavor for the NBS. The accounting of the changes between two adjacent periods takes into consideration holiday factors, a highly complicated process. We are still mulling over how we should reasonably deduct the holiday factors in our calculation. This calculation is still incomplete and I haven't obtained any data on that.

Phoenix TV:

My question is about real estate. You just mentioned the real estate contribution to the steady growth of economy. Could you give us more details about the contribution? According to some analyses, the growth of real estate will bring good economic data. Does this mean that we are going back to the old path of investment-driven economic growth? We know that real estate is an industry with high leverage. Is this going to bring risks to the momentum of economic growth? And will the government's optimism in regard to the growth in real estate push housing prices higher?

Sheng Laiyun:

The real estate sector is a very important industry with strong related effect to other industries, such as the development of various upstream industries, such as steel, cement and other means of production, and downstream industries, such as decoration, home appliances and motor manufacturing. Therefore, it is crucial to keep steady and healthy real estate development. The government pays close attention to this issue.

Since the second half of last year, the real estate sector has been rebounding, which, indeed, made a significant contribution to the steady operation and some positive changes in the economy. From the data of the first quarter, we can see that the contribution from real estate to overall economic growth has been increasing. According to preliminary estimates based on the input-output tables, the contribution from real estate to the comprehensive economic growth was higher than the same period of last year.

As for housing prices, their changes are decided by market demand. Since last year, housing prices have become divided into several groups that have witnessed differing degrees of change. In the first quarter, significant price rises were seen in all first-tier cities and some major second-tier cities, while in most cities in the third and fourth tiers, due to large inventory and comparatively smaller demand, prices declined slightly. However, the general situation remained stable. Therefore, we can see that there is an obvious division in housing prices.

In my opinion, housing prices will continue to divide further in the future. However, it will remain under control, because the government will improve macro-control policies. For example, in first-tier cities, housing prices won't increase too much when they reach a certain level, because, by that time, most justified housing needs, including some people's need to improve their living conditions, will have been totally satisfied. Besides, local governments in those cities will introduce policies to curb further price rises. Nonetheless, demand in those cities will remain strong. As for cities in the third and fourth tiers, local governments will try all means to reduce inventory, although its presence will continue to impose pressure on prices.

Now, I'll start to answer the question on whether our economic growth relies too much on investment and the housing market in particular. We haven't worked out the data on the three major contributors to economic growth in the first quarter. One thing is certain, however, and it's that consumption made the greatest contribution. Last year, 66.4 percent of economic growth was stimulated by consumption. I'm sure the figure in the first quarter was even higher. This is decided by our economic structure, development of the service sector and the upgrading of consumption. Fixed-asset investment also played a major role - more than 30 percent, I believe. Since last year, the government has made greater efforts to stabilize economic growth. Investments in key areas have been enhanced. Most of the money went to comparatively poorly-developed areas, such as underground pipeline networks and environmental protection. The investments were made to meet our current needs and will promote healthy, sustainable development in the future. They are different from previous investments.

Thank you.

Hu Kaihong:

That's all for today's press conference. Thank you, Mr. Sheng and friends from the press.

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