China has released key economic figures for the first half of 2016 on Friday. Among the numbers are data on GDP growth, retail, and investment. How has China's economy fared in the first six months? And what will the policy outlook be for the remainder of the year?
China's economy has remained steady in the first half of this year. Factory activity stayed in expansion territory while consumption and fixed assets investment both gained solidly. Economists say China's major economic indicators have been upbeat after previous lows.
"Industrial profits turned positive after negative growth last year. That is the best news. Plus, the fixed asset investment growth has rebounded after several years of declines. The service sector also has taken a larger share of the economy with consumption having a larger pull on growth," said Lu Zhengwei, chief economist of Industrial Bank.
But there's one area that has drawn attention. Private sector investment grew much less than government spending during the first half of this year. That was the word Thursday from China's top economic planner.
"Non-government investment has fallen this year. During the first five months, total investment rose 3.9 percent, 6.2 percentage points lower than last year. Non-government spending takes around 60 percent of total investment, which is less than one year ago," said Zhao Chenxin, spokesperson of National Development and Reform Commission.
The National Development and Reform Commission said it is studying the reasons for the falling investment in the private sector and will take steps to encourage more spending. That's even though economists say subdued investment from the private sector isn't necessarily a bad thing.
Lu also said, "The private sector is sensitive to markets, or the economic cycle. If they cannot make profits, then they would shrink or stop investment. It is related to their proactive moves to deleverage. In this way, we should not view less private investment as 100 percent a bad thing. It is normal during economic fluctuation."
Deleveraging is one of the key features of China's economic restructuring. That's along with destocking inventory and cutting overcapacity.
Reducing corporate burdens and strengthening weak links are also on the government's to-do list. That means the country's expansion needs drivers but not an over reliance on foreign demand.
Trade ministers from the world's top 20 economies met last week in Shanghai and pledged open and transparent global trade. But experts say last month's Brexit vote has cast a long-term shadow over that.
"Exports and imports between Britain and China only make up a small part of China's foreign trade. But for the long run, this is a mark to open a new era, deglobalization. Since China welcomes an open economy, if the trend is different, China will suffer," said Cao Yuanzheng, economist of Bank of China International.
It's widely agreed that China doesn't favor large-scale stimulus to boost its growth rate, but rather the quality of expansion. New growth drivers are in the making but targeted measures are expected in the second half of this year to keep China's economy moving forward.
