China Business Network:

You have just mentioned that the economic performance figures in March are relatively good, what's the reason behind it? The performance in the first quarter is in line with that of the fourth quarter last year and better than the market expectation. Can you give an analysis of future economic performance?

Mao Shengyong:

Thank you for your question. Last month when I released figures here, people were concerned that the economic performance in the first two months was not so good, but figures in March are now excellent. Some indexes remarkably rebounded and the added value of the industrial enterprises above designated size increased by 8.5%, 3.2 percentage points higher than that of the first two months. Overall investment has picked up and consumption has accelerated slightly. The pickup rate of exports in March exceeded 20% and some indexes rebounded significantly and performed better than expected. 

Generally, the improvement of those indexes can be attributed to the following reasons:

First, there are positive effects of the policies. During the fourth quarter of last year, we carried out six principal policies to stabilize the economy and they are now taking effect. At the beginning of this year, we have continued to implement a series of policies in a bid to expand investments and stimulate consumptions. Meanwhile, the Government Work Report issued in this year's Two Sessions has given birth to a slew of tax reduction polices, which will be specified in the near future. The positive signals released from the trade negotiations between China and the United States have also yielded positive results. The combination of those factors has boosted the confidence of businesses.

Second, stimulated by the policies, businesses and markets have higher expectations and additional growing confidence in the market. Early signals of improvement are already visible. 

Third, the Spring Festival had an impact on deviating the economy from its normal trajectory. Influenced by the particular earliness of this year's festival, the data in the first two months of this year showed signs of declining but eventually rebounded in March. Therefore, we’d better neglect the impact of the festival factor in specific months and hold a panoramic view of the entire quarter while comparing them with those in the same period last year. Many indexes in the first quarter this year dropped year over year, but they almost all are now equal to the data from the fourth quarter of last year and some of them are even higher.

To your question, there are some industrial indexes for reference. When getting the first glimpse of the data, we truly feel it was beyond our expectations. But it becomes rational when putting into scrutiny. Why? Just like what I have said, we need to take a look at the general factors: first, the factor of policies, which stimulate the positive effects of enterprises; second, the factor of enterprises' expectations, which are growing higher and higher; and third, the lowered value-added tax rate, which is considered highly important. For instance, the rate of value-added tax in manufacturing industries has fallen from 16% to 13% since April 1 of this year. Therefore, to enjoy the tax-rebating policies as much as possible, many enterprises asked for more supplies in order to increase their inventories. At the same time, the suppliers from the upstream industries are stimulated to expand their productive capacities. That can better explain the third factor. Fourth, we still need to take into consideration the factor of the Spring Festival. The economy of the industrial enterprises above designated size grew by 5.3% year-by-year in the first two months this year. But the figure could have been 6.1% had the impact of the festival been ignored. However, the growth of 8.5% in March should also be partly attributed to the festival factor. All in all, the industrial economic growth of 6.5% in the first quarter this year sustained a good momentum. This is the answer to your first question.

For the second question, about whether there's sustainability in the next step. For example, from the perspective of industrial growth, some of the factors just mentioned are short-term factors, some are medium- and long-term factors. But in combination, for example, the basis or favorable conditions for supporting the smooth operation of industry is relatively large or many.

The first favorable factor is, starting from April 1, the policy of lowering the value added tax rate has already been implemented, and the supporting rules and details will come out soon. After May 1, the cut of enterprise contributions to social insurance will also be implemented. A series of policies will be implemented, reducing the burden on enterprises and facilitating enterprises wanting to expand investment and increase production.

The second favorable factor is, based on the current situation, the role of finance to serve the real economy is strengthening, and the prudent monetary policy is flexible and appropriate. We see that market liquidity is reasonably abundant. From this perspective, the financial environment for the development of the real economy has improved slightly.

The third favorable factor is export. Exports increased by 21.3% in March, a significant increase of 21.2 percentage points compared with January to February. This was also affected by the factors just mentioned. Export growth in the first quarter was good. For the next stage, exports are still expected to maintain a certain growth. Judging from the situation we know, including from the survey and the data in early April, we see that exports can still maintain a certain growth. From historical data, we see that the growth rate of industrial enterprises above the designated size and the growth rate of exports are closely linked, and it is also a strong supporting force for the steady growth of the industry.

Therefore, many favorable factors support the steady growth of the industry in the next stage. Of course, we also see that there are many external uncertainties, and the growth rate of profits of industrial enterprises above the designated size has slowed. These are negative factors. Taken together, the growth of industrial enterprises above the designated size is unlikely to be as encouraging as what we've seen in March, but the industry can still maintain a stable and healthy development based on conditions and supports.

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