China's gross domestic product expanded by 7 percent in the second quarter compared to the same period last year according to data released on Wednesday by China's National Bureau of Statistics. It maintains the same growth rate as the first quarter and matches the government's target for the full year.
Under stable growth, we can see structural changes.
First, growth is mainly driven by the tertiary industry, whose year-on-year expansion is 8.4 percent, compared with 7.9 in the first quarter. This may be related to the stock market and the real estate sector.
In the second quarter the value of the stock market is increasing rapidly, which helps increase profits of financial institutes. After the new mortgage policy, sales in the real estate sector rebounded significantly, and this helps the growth of the tertiary industry.
The second industry growth rate is only 6.1 percent, which is another lower level compared with the first quarter, suggesting that traditional industry is still facing structural adjustment.
As to the structural contributions of investment, consumption and export, the National Bureau of Statistics released only the contribution of consumer spending. The annual total consumer spending is about 60 percent. Compared with the second quarter of last year, the ratio is up 5.6 percent, about 4.2 percentage points contributing to the ultimate growth rate of GDP.
According to data on imports and exports in the first half, we can infer that the contribution of net exports to GDP has also improved. So we may conclude that the demand of domestic and foreign is the main driving force of GDP growth.
Although the real estate industry as well as traditional manufacturing industry has caused some drag on GDP, the government's timely introduction of the "steady growth" stimulus also played a proper cushioning effect.
But there are some worries.
First, relatively ample liquidity has caused a prosperous capital market, but the money has hardly flowed into the real economy. However, the use of leverage causes bubbles and as the deleverage process goes on in the second half of the year the positive effect to the tertiary industry cannot be so strong.
Second, in order to remove the hidden danger of a possible burst of the real estate bubble, the sector can hardly go on to be the main driver of GDP growth.
Third, the traditional pattern of economic growth is to motivate private funds by tax and bank saving into government investment, but with the decrease of investment effectiveness and the need of removal of excess capacity, the decrease of investment can drag on economic growth for quite a long time.
In short, the economy still suffers impact from negative factors such as the removal of product capacity of the manufacturing sector and weakening of real estate, we also note that there are some short-term positive changes, such as stabilized real estate sales and warmer consumption.
Looking forward, although we do not deny that the current economy still has some downward pressure, there are reasons for optimism:
First, the government on many occasions stresses a steady growth and many executives set the tone for the whole year's GDP growth rate of around 7 percent. Since last year, China's leaders are in line with the previous "new normal" statement and stressing "bottom line thinking", to ensure that the economy does not suffer systemic risk, but also give full consideration to employment needs. Taking into account the government's financial strength and strong executive power, the economy will maintain steady growth. The debt exchange, the promotion of PPP in infrastructure and other stabilization measures will make investment at an acceptable level.
Secondly, with new mortgage policy, repeatedly cutting interest rates and decreasing bank deposit reserve ratios, domestic real estate sales will show signs of recovery in the short run.
Finally, the exchange rate is an important factor affecting external demand, but over the past few months the factor is gradually improving. Although external demand uncertainty remains strong, exports in 2015 will remain high.
It is worth noting that since the end of June the stock market fell sharply, which may affect consumption, especially real estate sales. As the government takes action to save the stock market, the market is temporarily stabilized and likely to continue to rise. But the uncertainty remains.
China hopes to develop a sound multi-level capital market, but on a global scale success stories are scarce. It is easy to say encourage people to participate in the trend of start-ups, but it needs time. Bubbles can be created in a short time, but companies need to grow over a relatively long period.
The government needs to focus on building market rules, which requires patience. Meanwhile, to maintain stable economic growth may be important to avoid systematic risk, but excessive administrative intervention delayed restructuring of the economy. How to balance two sides of administrative intervention requires skills.
The author Wu Jiangang is a lecturer at the Management School of the Shanghai University and a research fellow at the China Europe International Business School Lujiazui International Finance Research Center. The views do not necessarily reflect those of China Daily.
