SteelOrbis Shanghai
China's National Development and Reform Commission (NDRC) issued a report on the control over the economy. The report can be found hereafter.
In July, the decline of both investment and industrial growth from the previously high level also caused a slight decline in exports. The rapid economic growth slowed down a little although “high earning and low inflation” structure was maintained. The most important problem in the current economic operation is the excessive growth in supply caused by the rapid expansion in investment and
production. The remarkable decrease in growth rate of short-term investment indicates that the new round of macro-control measures are gradually having a remedial effect, but observing solid benefits may take a quite long time.
In July, the growth rate of demand - which consists of investment, export, and
consumption - shrank. The urban fixed assets investment in the month increased 27.4 percent year on year, down 6.3 percentage points compared with the growth rate in the previous month. Furthermore, the exports totaled $80.34 billion, up 22.6 percent year on year and down 0.7 percentage point month on month. Total retail sales of consumer goods rose 13.7 percent year on year, down 0.2 percentage point month on month.
Consumer Price Index in July increased 1 percent year on year, down 0.5 percentage point month on month. Against a 13-percent
consumption growth rate, the decline in this index demonstrates that the growth of supply is much higher than that of
consumption.
Therefore, the most important problem in the current economic operation is the excessive growth in
investments against the slow increase in demand. In short term, the emphasis of macro-control will be to firmly curb the newly started projects and rein the excessive growth in
investments.
In the first seven months this year, there are many newly started projects, leading to the rapid growth in lending. The number of new projects started in January-July period is 114,931; up 20,003 year on year. According to fixed assets investment rules, if the investment growth cannot be controlled in the first two quarters, then reducing the
investments in the second half of the year would not be easy due to the investment cycle and inertia. Generally speaking, the investment cycle lasts for about two years; therefore, its influence on financial credit and relevant investment will last during the next two years, which is worse for the already heated macro-economy at current stage. Also, if we cannot curb the new projects and investment growth at the beginning of the “Eleventh Five-Year Plan”, then whole plan and program will be affected. Therefore, readjustment of the economic structure and changing economic growth methods will be necessary.
The current key point is to solve the excessive growth in investment, over liquidity, and rapid rise in lending. The next step is still to strictly control the fixed assets investment on the aspects of project, capital and land.
The major task of the current monetary policy is to weaken the expectation on RMB appreciation and maintain a stable exchange rate. At the same time, the deflation of the liquidity is also aimed through raising deposit reserve rate, hiking interest rate and providing a window guidance. Central Bank may hike the interest rate again, if the
investments continue growing fast.