On July 15, China's economic data for the first half of the year was announced by the country's National Bureau of Statistics. According to preliminary calculations, the gross domestic product in the first half of the year is RMB 450.93 billion. When computed in comparable prices, the data shows a year-on-year increase of 6.3%. On a quarterly basis, there is a 6.4% increase in the first quarter and a 6.2% increase in the second quarter. In terms of growth rate, the economic growth has slowed down in the first half of the year. Although the slow growth is still within market expectations, it falls in the lower half of the 6% - 6.5% range of stable growth rate set by the Chinese government.
It is worth pointing out that the 6.2% growth rate in the second quarter is the lowest quarterly economic growth rate witnessed in China in 27 years since the first quarter of 1992. Hence, it is without a doubt that China's economic growth is slowing down due to pressure in the domestic and international economy, and this growth rate is approaching the lower limit of the target set by economic policies. Based on the economic growth in the first half of the year, if the economy declines to 5.8% in the second half of the year, the Chinese government will not achieve its target of at least 6.0% growth rate. Therefore, the Chinese government will not allow the quarterly growth rate to fall below 6.0%.
To better understand the state of China's economy and the challenges it faces, it is important to look at various data from different fields. First, let's look at investment. In the first half of the year, China's fixed-asset investment was worth RMB 299,100 billion, which corresponds to a year-on-year increase of 5.8%. This percentage is the result of a 0.5 percentage points decrease from the first quarter. Among fixed-asset investment, private investment was at RMB 180,289 billion after a 5.7% increase. Secondly, from the industries' perspective, investment in the primary industry fell by 0.6%, while investment in the secondary industry rose by 2.9% with a 3.0% increase in manufacturing investment. Investment in the tertiary industry has also increased by 7.4%. Among these three different industries, infrastructure investment has increased by 4.1%, while high-tech manufacturing investment has risen by 10.4% and high-tech service investment has also grown by 13.5%. Besides that, in the first half of the year, China's real estate investment was at RMB 61,609 billion with a year-on-year growth of 10.9%, and the growth rate has dropped by 0.9 percentage points from the first quarter.
Despite China's multiple stimulus efforts, its national investment growth rate has slowed down, which indicates that there is still a lack in investment. In particular, the lack of private investment is significant. First of all, the growth rate of private investment in the first half of the year was only 5.7%. This was 0.1 percentage points lower than the overall investment in the same period and 3 percentage points lower than the 8.7% growth rate of private investment in 2018. The proportion of private investment in the overall investment is decreasing as well; in 2018 it was only 62%, which is 1.7 percentage points decrease from 60.3% in the first half of the year. At the same time, the investments of Hong Kong, Macao and Taiwan has increased by 1.1% while the growth rate has dropped by 0.9%. Meanwhile, foreign investments have increased by 1.2% with a 1.6% drop in growth rate. This means that investment growth in the first half of the year was mainly driven by investments in state-owned enterprises and investment policies.
Next, one should look at the consumption as well. In the first half of the year, the total retail sales of consumer goods has RMB reached 195,210 billion with a year-on-year increase of 8.4%. This figure is also accompanied with a growth rate that was 0.1 percentage points higher than that in the first quarter. Among all consumer goods, the retail sales of goods among urban consumers were at RMB 166,924 billion with a year-on-year increase of 8.3%. Then, the retail sales of goods among rural consumers were at RMB 28,286 billion after an increase of 9.1%. In the first half of the year, China's online retail sales has amounted to RMB 48,161 billion with a year-on-year increase of 17.8%, which is 2.5 percentage points faster than the first quarter. The situation is slightly worse when it comes to household final consumption expenditure. In the first half of 2019, household final consumption expenditure per capita of China's residents was RMB 10,330 with a year-on-year increase of 5.2%. The household final consumption expenditure per capita of urban residents was RMB 13,565 with a year-on-year increase of 4.1%. Moreover, the rural residents have a household final consumption expenditure per capita of RMB 6,310 with a year-on-year increase of 6.4%. Therefore, it can be seen that domestic consumption has become the main driving force for economic growth as its growth rate has surpassed the growth rate of GDP during the same period. However, this growth rate has begun to plateau.
Then, we shall look at China's imports and exports. In the first half of the year, the total import and export of Chinese goods was RMB 146,675 billion with a year-on-year increase of 3.9%. The exports were worth RMB 79,521 billion with a 6.1% increase while the imports were worth RMB 67,155 billion with a 1.4% increase. This results in a trade surplus of RMB 12,366 billion, which is an increase of 41.6% over the same period in the previous year. The effects of U.S.-China trade war and the deterioration of global trade environment has reduced the growth rates of imports and exports. Although the trade surplus in the first half of the year has increased significantly, this is mainly due to a decline in imports. This shows China's economy and domestic demand are weakening. There is also a supply chain shift as some investments are moving out of China. Vishnu Varathan, Head of Economics and Strategy at Mizuho Bank said that the sharp slowdown in China's imports has created a risk of changes in the supply chain. To make matters worse, China's weak economic growth in the second quarter may affect the economy in other parts of Asia.
In addition, the industrial growth rate and business profits in the first half of the year are not ideal. The total value of enterprises above designated size experiences a year-on-year increase of 6.0% in the first half of the year, and its growth rate has dropped by 0.5 percentage points since the first quarter. Between January to May, the total profits of enterprises above designated size has reached RMB 23,790 billion with a year-on-year decrease of 2.3%. This decline was 1.1 percentage points lower than that between January to April.
Final analysis conclusion:
In a nutshell, China's economy in the first half of the year is at the risk of underperforming. Due to internal and external pressures, the slow economic growth is noticeable. China's economy is struck by the combination of the effects of trade war, structural problems in the domestic economy and other policy issues. Faced with multiple economic challenges in the second half of the year, as the central banks around the world continue to reduce the interest rate, China's macroeconomic policies may need to toughen up and increase economic stimulus. However, as the time window for policy adjustments is lagging behind, the effects of monetary policies may be compromised. Hence, China aims to achieve economic stability, while it will definitely not be an easy thing to do.
