Economic Daily:

Since the second half of the year, the statistics of production, consumption and investment have been falling. Now, there's a saying that the bonus brought about by the supply-side structural reform is shrinking. Can you please comment on this opinion. In addition, as our reform keeps on moving ahead, what will the next phase of the economic trend be like? Thank you.

Liu Aihua:

Thank you for your questions. Looking at the general picture, we can see certain numbers have indeed shown a slowdown in this month's statistics. However, if we observe the economy as a whole, there is a need to consider it from multiple angles and in multiple dimensions. The short-term ups-and-lows are often affected by some non-economic factors, such as climate and cardinal numbers, which do not necessarily reflect the overall trend. For example, in the recent two months, July and August, you know the high-temperature and often rainy weather can affect many indices. Because of this oppressive kind of weather, many industrial enterprises suspend their production and take advantage of the lull to undertake maintenance. So, the regular production and operation may be influenced, which will also affect the year-on-year growth of industrial production. Furthermore, we have mentioned that consumer prices have seen a larger increase on a month-on-month basis, and this is also due to the weather factor. For example, due to the weather, the cost of storing fresh vegetables will be higher. So, when we evaluate the economic situation, we should not only look at the year-on-year growth, but also the month-on-month and accumulated growth figures. When we look at it from various perspectives, in general the basic situation of economy in August did not change. Production and demand are stable, and the economic structure continues to be adjusted, and the quality and benefit are also on the rise. The stable and positively improving trend is not changed.

When there are no fundamental changes, the trend for the second half of the year will continue in a good direction. And there are three major factors to support that.

First, the base is stable. As supply-side structural reform continues, the enterprises' operations and benefits keep on improving, as the residents' income is improving in a stable way, and fiscal incomes are growing faster. The three major income sources are performing at their best rate in recent years, and this is very rare. The micro-foundations are positive, which has laid a stable base for the macroeconomic positive trend. For example, in regard to the consumers, in the past half year, incomes have actually grown 7.3 percent, or 0.8 percent faster on a year-on-year basis. This is a high speed when we look at recent years. When residents' incomes grow faster, this will promote upgraded consumption. In addition, as the supply-side has seen stable improvement of quality and level, so the consumption will have chance to stay in fast lane and continue to grow. From the perspective of investment, as enterprise profitability keeps on rising and the market demands keep on improving, this will strengthen the investment capabilities of enterprises and enlarge the investment space. And from the perspective of foreign demand, currently the world economy continues its revival and our export products have enhanced their competitiveness, so we have a relatively solid base for foreign needs to grow stably and positively. So, looking at the three demands, the base for the demand to stably enlarge is becoming better and more stable.

Second, there are clear signs of increased vigor. Thanks to the boost by public entrepreneurship and innovation, there are many more new entities appearing. In August, the number of newly-registered enterprises reached 17,000 a day, faster than the figures last year. Besides, new industries and new models are also fast developing. From January to August, in the online retail volume, the physical commodities' value of retail sales increased by 29.2 percent year-on-year, and non-physical commodities' value of retail sales grew even faster, increasing by 52.9 percent year-on-year. This dynamic new growth also created new impetus and vitality into overall economic growth, and will make the economic growth more stable and better.

Third, the prospects are very positive. As noted already, in August, the manufacturing industry's Purchasing Managers' Index was 51.7 percent, which has stayed above the critical point for 13 straight months. The non-manufacturing PMI activity was 53.4 percent, while the consumer confidence index also remains at a high level. Recently, the international community also have stronger confidence in China's economic development. So many international organizations have raised their projections of China's economic growth.

So, from these three aspects - first, more solid foundation; second, strengthened vigor; third, positive prospects - we can see that the short-term fundamental base for economic growth has not changed, and the stable and positive trend will continue.

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