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China's industrial sector faces new challenges
中国工业部门面临新挑战
China has posted economic data for the first half of 2015. At a press conference held this morning, the country's statistics agency says the Chinese economy expanded by 7 percent during the January to June period, beating markets expectations and easing concerns of a sharp slowdown.
Stability, is the perfect word to describe China's economic growth in the first half of this year. The GDP stood at 7 percent, the same level as that of the first quarter. Previous expectations indicated that the first half GDP might underperform, so the 7% increase was a signal of confidence that the world's second largest economy is still robust. However, experts say that substantial challenges still remain for the economy. Some of the experts say that in order to maintain growth in the new normal, China must face both old and new challenges.
7% overall growth. China's half year economic performance has been exceedingly stellar. That's according to many analysts who say new figures from all sub-categories surpassed expectations. However, the growth speeds are still hovering at low levels. Challenges remain.
"In the first half of this year, global recovery was slower than expected. Falling commodity prices have also added uncertainties. Domestically, China is in a key phase of economic transitioning. The rise of new growth points is still not enough to hedge against the slowdown of old growth models. That gives sustained pressure on the economy," said Sheng Laiyun, spokesman of National Bureau of Statistics.
Weak consumption and investments has taken a toll on the industrial sector. Manufacturers aiming to reduce over-capacity and cope with falling overseas demands are finding it harder to do business. Industrial output showed clear signs of a pick-up in the second quarter, but experts say more needs to be done to bring growth back to last year's average level. One time tested solution to support industrial growth is monetary stimulus. After four rounds of benchmark rate cuts by the central bank since late last year, experts say the rates still have room to go down to help industries.
"China, as a newly industrialized economy, our interest rate has been too high. Compared to our inflation, or talking about PPI, it has been in 14 months of consecutive deficit, minus 4.6 percent on average in the first five months. That suggests the real interest rate is still as high as 9 to 10 percent," said Chen Xingdong, chief economist of BNP Paribas China.
However, concerns are rising that traditional measures are losing their effect. Some experts say that in 2015, the major problem in industries has shifted from not getting enough liquidity, to not having enough overseas and domestic demand.
"Even if you provide liquidity to manufacturers, they don't want it. We don't have a strong demand for borrowing. The enterprises find that there is no demand, there is no new order coming, or my order is too poor. I don't want to expand my production, I don't want to borrow," Chen said.
That poses challenges for China's central bank and the government to come up with innovative ways to combat new problems in the economic new normal.
