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UPDATED: September 16, 2013 NO. 38 SEPTEMBER 19, 2013
Recovery Mode
China's economy has bottomed out and should dispel out any long-term doubts
By Lan Xinzhen

Reform brings benefits

The Chinese economy grew slowly in the first half of 2013, a clear indication that a transformation of the economy was underway and in line with the Central Government's plans to shift the economy away from the model of heavy pollution and high energy consumption.

Many economists predicted the slowdown brought by the transformation would continue for a long time, but the August data indicate that the period of "pain" seems to have come or will soon come to an end, allowing China to embrace a period of more sound and sustainable growth.

To ensure stability when transforming the country's growth model, the new leadership has launched a dozen of reform measures, such as delegating more approval powers to lower level governments, removing the floor on lending rates, accelerating the development of energy-saving industries and environmental protection, strengthening financial support to small and micro-sized enterprises and setting up Shanghai free trade area. August's economic numbers show that these measures have achieved some effect, and the policy dividend unleashed has created an impetus for stable economic development.

Eyes on the future

China's policies on ensuring stable growth will not just consider present growth, but sound and sustainable future growth as well.

Hu Chi, a researcher with the State-Owned Assets Supervision and Administration Commission's research center, said economic growth is already in a recovery mode and is expected to maintain stability in the second half of the year. However, increasing local government debt, less investment in manufacturing, weak corporate profit growth, and particularly the decline of profits among private enterprises are all areas of concern that could thwart China's recovery.

Hu adds that it would be close to impossible for the Chinese economy to return to double-digit growth, a feat it enjoyed for much of 30 years. Growth of 7-8 percent over the next two decades is sufficient to meet the needs of the economy's transformation, he said.

A report by Everbright Securities Co. Ltd. notes that consumption and investment in manufacturing have more room for growth. Although the August news is welcome, much of the positive data were due to infrastructure investment, something that can't be relied on to maintain long term growth.

"From this point of view, we are concerned about how long such an economic recovery will continue," read the report. "Only if consumption and exports can pick up the baton from infrastructure investment in the future, can the economic recovery be sustained."

Email us at: lanxinzhen@bjreview.com

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