Economic Daily:

Recent statistics show weak consumption and sluggish investment and exports. Does it mean downward economic pressure will increase in the next half of this year?

Mao Shengyong:

Thank you for your question. First, I will talk about current consumption and then the economic situation in the next half of this year.

I do not totally agree with your judgement on consumption. With all the aspects taken into consideration, consumption still maintained growth momentum and the market is sound overall. First, the consumer prices grew by 2 percent in the first half of this year, a modest growth level, which shows supply and demand of the market were basically balanced. In addition, the supply of the consumption market has been abundant over the past years. The modest growth in price shows that the demand keeps growing, otherwise the price has no backup. 

From the aspect of imports, cargo imports grew by 11.5 percent in the first half of this year and service imports increased by 11.4 percent from January to May. Apart from the surge in commodity imports, the growth of consumption goods imports also contributed to that of cargo imports. For example, the cosmetics imports doubled and the aquatic and marine products imports increased by over 12 percent. The growth of imports manifested great domestic demand. 

As for total retail sales of consumer goods, the fact that the figures from May and June fluctuated drew public concern. Its growth in the first half of this year is 9.4 percent, and that of the first and second quarter is 9.8 percent and 9.0 percent respectively. The growth level from 9 to 10 percent is not slow. One of the reasons is that auto sales in May and June dropped sharply due to the adjustment of the auto import tariff on July 1. These sales account for about 13 percent of the total retail sales of consumer goods, a relatively high percentage, so the total figure clearly decreased. With that factor removed, the growth rate of total retail sales of consumer goods would be about 10 percent in May and nearly 11 percent in June, rather than 8.5 percent and 9 percent respectively. And the figures in the second quarter would have been higher than those in the first quarter if the factor were removed. Therefore, the growth rate of the total retail sales of consumer goods should be interpreted comprehensively. 

From the aspect of service consumption, the structure has been upgraded over the past few years, as the consumption of upgraded commodities and that of services grew rapidly. As for the household consumption expenditures in recent years, the ratio of service consumption grew by about one percentage point annually. Currently, it accounts for about 50 percent of total consumption. The continuous growth of the proportion of service consumption means that if its growth rate is counted on the basis of current prices, it will be even higher than that of physical consumption. To sum up, the current consumption in China maintains good growth momentum, rather than a sluggish one. 

The second question involves economic growth in the second half of the year. The short-term economic growth mainly depends on three major demands. According to statistics in the first half of this year, domestic demand is the decisive force in the pattern of economic growth, while consumption is the pillar in domestic demand. Analytically, consumption could maintain stable and comparatively fast momentum for development in the second half of this year, given the following several factors.

First, consumption itself has the prerequisites for growth, and this inference is on a theoretical basis of economics.

Second, residents' income has grown at a relatively fast pace overall in the past few years, and consumption is believed to be a mathematical function of income.

Third, and also a very a very important point, China's economic development has entered a stage in which the upgrade of consumption structures will only speed up instead of slowing down, and that is the trend of the times.

Fourth is attributed to the adjustment of policies on imports. To upgrade the opening up and to keep up with people's ever-growing needs for a better life, China has expanded its imports over the past few years and promoted the activity and supply of the whole market as well.

So, consumption still can continue favorable growth in the second half of this year.

The first half of this year also registered a slower but stable performance in investment, particularly in the following three major areas.

First, investment in the manufacturing industry has increased for three consecutive months, and the growth momentum is expected to continue in the second half of this year.

Second, investment in real estate development increased by 9.7 percent in the first half of this year. Let's focus on two leading indexes – the total floor space of houses newly constructed and the space and costs of the land space purchased– both of which enjoyed rapid growth in the first half of this year. Based on that fact, investment in real estate is also expected to enjoy comparatively rapid growth in the second half of this year.

Third, investment in infrastructure went down in the first half of this year. However, with the completion of projects and with the progress of compliance projects, investment in infrastructure is expected to remain basically stable in the second half of this year. 

Generally, total investment will remain basically unchanged in the second half of this year.

The above is the case for domestic demand. While stressing domestic demand is a decisive factor, we don't mean external demand isn't important. External demand is still a very important variable. Foreign trade maintained favorable development overall in the first half of this year. There are challenges ahead, but there are favorable conditions, too. Foreign trade will still maintain stable and comparatively fast momentum for development in the second half of this year.

In summary, China's economy will continue to maintain stable performance with good momentum for growth in the second half of this year. Thank you.

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