International Department of the CPC Central Committee       BEIJING REVIEW
Saturday June 30, 2018       MONTHLY
Beating expectations
By Zhou Xiaoyan 

Customers queue for the checkout at the Sanya International Duty-free Complex in south China's Hainan Province (XINHUA)

As the escalating trade war between China and the United States casts a shadow over the world's two largest economies and the global economy at large, the much-anticipated Chinese economic figures for the first half of the year have offered some certainty of China's economic resilience and sustainability amid mounting instability worldwide.

The Chinese economy expanded 6.8 percent year on year in the first half of 2018, beating market expectations. The rate was 6.7 percent for the second quarter, edging down 0.1 of a percentage point from the first, with the growth rate within the 6.7-6.9-percent range for 12 consecutive quarters, according to data released by the National Bureau of Statistics (NBS) on July 16.

NBS spokesperson Mao Shengyong said at a press briefing that the data showed the country's economic growth remained stable with good momentum.

"Positive factors underpinning high-quality growth are accumulating, laying a solid foundation for achieving the growth target for the whole year," Mao said. China has set its annual GDP growth target at around 6.5 percent for 2018.

However, external pressures are mounting, and domestic structural adjustment has now reached a critical stage. China should actively boost domestic demand, invigorate the real economy, cope with external challenges and prevent and defuse risks, Mao said.

On July 16, the International Monetary Fund (IMF) predicted China's economy to grow 6.6 percent in 2018, unchanged from its April forecast. "China continues to grow in line with our earlier projections," a statement from the IMF said.

Looking ahead, the Chinese economy will continue the trend of seeking progress amid stability, with the target of 6.5 percent for 2018 as a whole achievable, Xu Hongcai, deputy chief economist of the China Center for International Economic Exchanges, told Beijing Review.

"The growth rate is likely to come in around 6.7 percent for 2018, 6.6 percent for 2019 and 6.5 percent for 2020," Xu said, adding that at this rate, the goal of doubling China's economy and the per-capita income of its residents from 2010 to 2020 will be accomplished.

Consumption-driven

According to Mao, during the first six months, an optimized economic structure has been reflected in a stronger service sector, the acceleration of industrial upgrading, progress in innovation and green development, and most importantly robust consumption.

The service sector is booming, having contributed 60.5 percent to GDP growth in the first six months, up 1.4 percentage points from the same period last year. The industrial output of hi-tech, equipment manufacturing and strategic emerging industries increased by 11.6 percent, 9.2 percent and 8.7 percent respectively, each surpassing the growth of overall industrial output.

Supply-side structural reform is also yielding positive results. In the first half of the year, industrial capacity utilization reached a new high of 76.7 percent, up 0.3 of a percentage point from the same period in 2017. More so-called "zombie enterprises"—poorly performing companies reliant on government support—were shut down, with low-end production eliminated from the market.

The job market was generally stable, with the surveyed urban unemployment rate staying at 4.8 percent throughout June and May, the lowest since 2016. In the first five months, some 6.13 million urban jobs were added, surpassing the figure for the same period in 2017 and making achievable this year's target of creating 13 million jobs.

In recent years, the upgrading of China's consumption has been accelerating. Growth in the retail sale of consumer goods has surpassed that of fixed assets investment for 26 consecutive months, evidence of the increasing role of consumption in the Chinese economy.

Domestic consumption has been the ballast for growth, its contribution to GDP growth as high as 78.5 percent in the first half of 2018, up 14.2 percentage points from a year ago, according to the NBS.

During this period, the retail sale of consumer goods increased by 9.4 percent year on year, with online retail sales surging by more than 30 percent.

"Judging from major economic indicators, domestic demand has become a decisive force of growth in China," Mao said, predicting that the stable and sustained growth of consumption will continue into the second half of the year.

Several factors will support steady consumption growth in China. "Residential income has been increasing more quickly and deeper pockets facilitate more spending," Mao said. "More importantly, the Chinese economy has developed to the stage that consumption upgrading will only speed up, not slow down."

In addition, China's cuts to import tariffs will spur more domestic consumption and better satiate people's demand for a higher quality of life, he said.

Xu said that boosting domestic demand is a long-term objective for China.

"The first step is to add more jobs via, for example, the creation of a more favorable business environment for small and micro-sized businesses and those related to agriculture. With a stable income, people are more willing to spend," Xu told Beijing Review. "In addition, the social security system needs to be improved so that people are more willing to part with their money rather than constantly saving, and taxation policies should be further reformed to increase people's sense of gain."

In June, the Standing Committee of the National People's Congress, China's top legislature, began reviewing a draft amendment to the Individual Income Tax Law as part of efforts toward the more even redistribution of income. The draft amendment proposed raising the threshold for personal income tax from 3,500 yuan ($519.3) to 5,000 yuan ($741.9) per month, or 60,000 yuan ($8,902.8) per year.

"Some people think that the 5,000-yuan threshold is appropriate because anyone with a monthly salary of 5,000 yuan is rich. This is unrealistic. I strongly suggest raising the threshold to 10,000 yuan ($1,483.8)," Xu said, adding that taxation policies should be adjusted to help rein in China's growing wealth disparity.

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