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High urban fixed-asset growth and demand inspire confidence

By Xin Zhiming (China Daily)
Updated: 2008-08-26 09:13

China's urban fixed-asset investment rose 27.3 percent year-on-year in the first seven months, compared with the first half's 26.8 percent, promising to bolster the economy even as exports weaken.

The National Bureau of Statistics did not reveal the investment growth for July, but based on these figures, it is estimated that the July figure could be 29.4 percent.

China's domestic demand also grew steadily in July, increasing the possibility that the overall economy may not suffer much while trade is battered by weakening global demand, analysts said.

The annualized growth rate in retail sales rose to a record 23.3 percent in July from 23 percent in June, according to the statistics bureau. This is all the more impressive as inflation dropped to 6.3 percent in July from 7.1 percent in June.

As the country's trade surplus fell 9.6 percent year-on-year in the January-July period, the solid growth in retail sales and investment is an assurance the economy could remain resilient, analysts said.

China's economic growth slowed to 10.4 percent in the first half from almost 12 percent last year.

"With the phasing out of the Olympics influence and the slowing of household incomes, growth in domestic consumption will weaken in the second half, but it will still be the steadiest driver of the economy," Ha Jiming, chief economist at investment bank CICC, said in a research note.

Agreed Zhu Baoliang, senior economist with the State Information Center. Consumption will remain stable for the rest of the year, he said. "Retail sales generally do not change much. It is expected to remain stable, but will not increase rapidly."

Fixed-asset investment, a major pillar of the national economy, may ease in the coming months, he said. A large part of the investment is trade-related, analysts said, and will decline as export slows.

But it should not decline significantly since investment by the government and State enterprises would remain strong, said Duan Hongbin, economist with Ipencil Economic Research Institute in Shanghai. "Private enterprises may feel the need for investment capital, but State enterprises won't."

Although export and trade surplus growth could continue to fall in the coming months and the economy is set to decline, the overall economy can still manage to grow at 10 percent this year, said Zhu.

Macroeconomic regulations would hold the key to the economy, analysts said. China has adopted a tightening policy since the second half of last year to curb inflation and overheating. But the latest stance has been shifted to curbing inflation while ensuring a stable economy, a departure from the previous one.

"I'm not sure to what extent the Chinese economy would slow this year," said Hua Min, director of Fudan University's Institute of World Economy. "In the short term, it will hinge on the degree of policy tightening. If policymakers ease the tightening stance and increase liquidity in the market, the economy can be saved from drastic declines."

Following last week's rumor that the government was considering a massive stimulus plan worth up to 400 billion yuan, the Economic Observer yesterday reported policymakers are indeed considering such a plan, which includes 220 billion yuan in new investments and 150 billion in tax cuts, citing insiders.

The rumor reflects a market expectation that policymakers may intervene to save the economy as global economic prospects remain gloomy, analysts said. And, the belief that the government wishes to spur growth might in itself boost fixed-asset investment in the coming months, said Sherman Chan at Moody's Economy.com in a research note.

"As the authorities appear to have now shifted their top priority from curbing inflation to fuelling economic growth, investors keen to enter the Chinese market have been given an injection of confidence," she said. "Investment will likely continue to grow at a breakneck pace in the coming months."