China’s GDP Needs Catalyst

The State Council of China once again gave out the“decree” about the GDP growth target： the goals of social and economic development stated in this years Governmental Working Report must be completed. In the major tasks， the CPI， employment and GDP are the most important. It is certain that the CPI and employment goals can be completed smoothly based on the data in the first half of this year and the outlook in the following six months.

However， the GDP growth still needs a bit stimulation to reach the fixed target.

The easiest task： CPI

The slowdown of economic growth in these two years was accompanied with the mild increase of CPI. Last year， the expected goal of CPI increase was 3.5%， while the actual figure was only 2.6%. The goal about controlling the inflation was done without any problems.

This years CPI target is still set at 3.5%. In the first half of 2014， the figure increased by 2.3%， much lower than the increase in 2013. Experts all believe that there will be no dramatic increase in the commodity price in the second half of this year.

Yao Jingyuan， a contract research fellow with the Consultancy Office for the State Council， says that the CPI will not go up in the second half of this year.“The price increase in these years shares the same structural pattern. The increase mainly happened in the agricultural products and food processing， which could account for 70% of the CPI increase. In the first half of this year， China has harvested the summer grain crops， laying a foundation for the steady grain price in the second half of this year. We usually say that the stable grain price could stabilize the prices of other commodities. In addition， the imported inflation stress is not big either. The commodity price will remain stable in the second half of this year.”

Lian Ping， chief economist with Bank of Communications， says that carryover effect will decline month by month in the second half of this year. Among the new factors for price increase， which are one of the two sources of the influences on the CPI along with carryover effect， the pork price is to increase at a high month-onmonth rate supported by the new round of reservation of frozen pork. This might cause small fluctuations in the CPI change rate， but generally， the CPI increase in the year of 2014 is 2.2% or so.

The other research institutions， such as Bank of Communications， Nomura， Shenyin Wanguo， China Investment Securities and Tsinghua Universitys Research Center of Chinese and World Economy， all estimated the CPI increase in 2014 at between 2.2% and 2.5%， much lower than the set goal of 3.5% increase.endprint

The most guaranteed task： employment

Last year， the Chinese government set the target of increasing 9 million jobs in the whole year. The target was finished in advance in the third quarter of 2013. In the whole year， 13.1 million jobs were created in China.

This year， the target concerning the employment is set at 10 million new jobs. According to the available data， the new working population had reached 7.37 million by June， meaning that China spent half a year finishing 73.7% of the whole years employment target. It is out of question for China to create fewer than 3 million new jobs to complete the goal in the second half of this year.

“Premier Li Keqiang mentioned several times that the economic work was to improve peoples livelihood. The No. 1 task of improving peoples livelihood is to improve the employment. Therefore， we need to hold the positive employment policies. I believe that there are no big problems for China to finish the goal of employment in the second half of this year，” Yao Jingyuan says.

Yin Weimin， Minister of Human Resources and Social Securities， says： “In the previous few years one percent GDP growth could create more than 1 million jobs in the urban area. In recent two years， the figure increased to 1.5 million.” Based on this， if China could realize the goal of increasing the GDP by 7.5% this year， they could bring about 11.25 million new jobs in the urban area， 1.25 million more than the set target.

In addition， the number of newlyadded jobs in these years is always higher than 12 million.

The hardest task： GDP

Among all social and economic development goals， GDP is the most attention-worthy one. In 2012， China lowered its expected annual GDP growth rate to 7.5%. In 2012 the GDP of this country grew 7.8% and in 2013 the figure was 7.7%， realizing the expected goal without any problems.

This years target of GDP growth rate is still set at 7.5%， but in the first half of 2014 China only saw the 7.4% GDP growth rate， slightly lower than expected. Speaking of the economic situation in the second half of 2014， both the governmental officials and economists admitted that the stress was still very big in the H2. The dim outlook has clouded the prospect of China to finish this years GDP growth target.

But the decision-makers of China are confident – and require – that the 7.5% annual GDP growth rate can be realized this year.endprint

On April 16， when the economic data for the first quarter of 2014 came out， the State Council held a meeting in which the deci-sion-makers used the phrase “make sure it can be completed” for the goals of the social and economic development. On July 16， when the second quarters data was published， the State Council held a meeting in which the phrase of “make sure it can be completed” was changed to the one that “the goal must be completed”.

From “making sure” to “must”， the change of the word use reflected the strong attitude of the top decisionmakers for the completion of set goals. This means that China must realize the goal of increasing GDP by 7.5% in 2014 despite the pressure of economic slowdown in the second half of 2014.

The data from researchers and analyzers fixed the maximal annual GDP growth rate at 7.5%.

The three factors that drive the economic development went through dif- ferent situations in the first half of 2014. The economic development of China was still driven by the domestic demand in H1， as the consumption and investment respectively contributed 54.4% and 48.5% to the GDP growth. However， the slowdown in the investment into real estate has brought a lot of uncertainties to this sector. How to drive the investment to play a role in GDP growth？ The answer lies with the governmental decisions.

“From the macroeconomic adjustment in the second half of 2014， the specific measures for the real estate market is the key to the revival of investment，” says Zhang Liqun， a researcher of macroeconomics with the Research Development Center of the State Council. In his opinion， the policies should vary to regions. In the monetary policy， for example， the conditions to provide loans and the interest rate need to be changed according to local situations.

Nevertheless， there is a voice that it is meaningless to only purse the goal of economic growth rate. Chinas economy has already been in the period of middlespeed growth in which the 7%-8% economic growth rate is quite normal.

Yao Jingyuan stresses that China need to put more efforts into the structural change and pattern shift when they think over the economic development in the second half of 2014.

Zhang Liqun also agrees with that. In his opinion， the economic reform of China has been in the pivotal period and needs the support from the government. It needs to streamline the administrative structure and decentralize the economic rights. It also needs to promote the reform to the state-owned enterprises and so on.endprint