China's economy is doing better than official data suggests, the Commerce Ministry said a day after figures showed growth at an 18-month low, adding that targets for exports and imports this year should be met despite some caution over the trade outlook.
Ministry spokesman Shen Danyang said a rise in export deliveries, a customs department poll of exporters and growth in trade in individual provinces all showed that the economy was in good shape.
"I agree with the opinion that the economy and trade were faring better than the released data showed," Shen told reporters at a briefing on Thursday.
Data on Wednesday showed the economy grew an annual 7.4 percent in the first quarter, its slowest pace in 18 months but just ahead of forecasts for 7.3 percent growth.
March trade figures earlier this month showed exports unexpectedly fell for a second successive month and imports dropped sharply.
Shen said trade numbers in 2013 had been artificially inflated by the reporting of fake deals, used to avoid capital controls, before a crackdown. That was one of the reasons for the sharp drop in trade figures in the first quarter, he added.
"Stripping off the abnormally high comparison base of last year, China's exports and imports in the first quarter actually grew 4.6 percent and 9.6 percent respectively," he said.
The government has repeatedly said it would accept slower growth to push forward its restructuring of the economy away from a reliance on investment and credit for growth.
Commerce Ministry data on Thursday showed foreign direct investment (FDI) inflows of $12.2 billion in March, down 1.5 percent from a year earlier. However, total first-quarter FDI grew by an annual 5.5 percent to $31.5 billion, and Shen said the trend of steady growth was intact.
The government wants to attract FDI to services, high-end manufacturing, and environmental industries instead of into low-value factories, and wants local firms to increase offshore investment.
FDI in the service sector rose by 20.6 percent in the first quarter from a year earlier. Services attracted 55 percent of foreign direct investment, and manufacturing took 37 percent.
Outbound investment by non-financial Chinese firms was $19.9 billion in the first quarter, down 16.5 percent from a year ago.
It had fallen an annual 37.2 percent in the first two months of 2014, and the commerce ministry had previously said a $15 billion acquisition by oil and gas producer CNOOC in early 2013 was the reason for the sharp drop.
The data showed outbound investment to Hong Kong fell 47 percent in the first quarter from last year. Investment in ASEAN countries and the European Union also fell.
Last week, the economic planning commission said it would ease restrictions on overseas investments by allowing firms to make deals of less than $1 billion without approval.
Challenges dent China's March FDI
Foreign direct investment in China fell in March for the first time in 14 months, reflecting challenges for overseas investors in an increasingly sophisticated environment.
Foreign investors channeled US$12.2 billion into the Chinese mainland last month, down 1.47 percent from a year earlier, Ministry of Commerce figures released yesterday showed.
That contrasted with a 10.44 percent increase in the first two months, and was the first contraction since January last year.
However, the first-quarter total of US$31.5 billion was still up 5.5 percent year on year.
March saw a significant decrease in investment from Japan and the European Union, with declines of 47 and 24 percent respectively, while funds from the United States were down 1.9 percent.
ASEAN countries, on the other hand, raised their input by 7.8 percent, with South Korea more than doubling its investment.
Meanwhile, outbound direct investment fell 16.5 percent on an annual basis in the first three months to US$19.9 billion, with the decrease narrowing from the cut of 37.2 percent in the January-February period.
Shen Danyang, a ministry spokesman, said it was normal for investment, both inbound and outbound, to fluctuate.
"The declines in March won't affect stable growth of foreign investment for the year," Shen said. "We are confident of the outlook because China remains a very important destination for foreign investment."
China's stability, market potential, human resources and support facilities had strengthened China's competitiveness and made it a popular destination for foreign investment, Shen said.
Foreign investment flowing into China's service sector gained 20.5 percent year on year to US$17.3 billion in the first quarter, making up 55 percent of the overall basket. In comparison, the manufacturing sector drew US$11.6 billion, down 11 percent on an annual basis.
Foreign investors are facing an increasingly tricky landscape in China, with the country's growth slowing and production costs rising because of a shrinking labor force.
Official data showed growth was 7.4 percent in the first three months, the slowest pace since 2012's third quarter.
China's economy will not see hard landing
By Wu Jiangang (chinadaily.com.cn)
There is no worry of a hard landing in China. Economist Paul Krugman in a recent post ("How Much Should We Worry About a China Shock?" The New York Times, July 20, 2013) says he is very worried about the indirect and unanticipated effects of a Chinese hard landing. Michael Pettis, an important China observer who lives in Beijing, has in his new book, "Avoiding the Fall: China's Economic Restructuring", predicts that China's GDP growth will slow down to 4 to 5 percent in the next 10 years.
All these concerns have gained currency only recently. China's first quarter GDP growth rate fell from 7.7 percent in the fourth quarter of last year to 7.4 percent, which is the lowest level since September 2012. There are also other clues that may make expert economists worried, such as a quick devaluation of yuan, rare drop in exports, volume contraction of real estate transaction, historically first defaults in trusts and bonds, etc., all of which presents a picture that we are headed toward economic hard landing.
But we may not need to worry about it either in the short run or in the long term.
In 2014, China can achieve the economic growth rate of 7.5 percent. Though the GDP growth for the first quarter is lower than the expected economic growth target of 7.5 percent, thanks to fiscal and monetary policies, the next quarters may see higher growth rate. Although Premier Li Keqiang has said that the government will not use massive fiscal stimulus program, the government has plans of "micro-stimulus", such as tax incentives for small and micro enterprises, shantytowns transformation and railway construction. We can also expect relatively loose monetary policy, too, since the M2 growth rate of slowdown from February's 13.3 percent to 12.1 percent and a comparatively low CPI of 2.4 percent in March have given enough space for the adjustment of interest rate or deposit reserve rate. In fact, 50.30 of PMI in March indicates that the economy as a whole is expanding.
We also should not worry about import and export. Though there has been a decrease of 3.4 percent in imports and a decline of 1.6 percent in exports in the first quarter and, more importantly, a fall of 9 percent in imports and a drop of 11.3 in exports in March, this is mainly because of one-off factors, such as last year's inflated data due to special circumstances and slowdown of cross-border arbitrage of RMB between Hong Kong and Chinese mainland. The truth is that except for a significant drop of 33 percent in exports to Hong Kong, there has been an increase in exports of 6.3 percent to EU, an increase of 0.9 percent to US, an increase of 2 percent to ASEAN and an increase of 2.6 percent to Japan. With the US economy getting stronger and EU's economy becoming more stable, exports will pick up further.
Even in the long term, China will not experience a hard landing.
Take real estate for instance. People worry that China, like Japan, might fall into decades of economic stagnation if the real estate bubble bursts. But the real reason behind Japan's stagnation is its aging population and zero growth. Moreover, inconvenience of renting, lack of investment channels and fear of inflation make people more willing to buy houses, which creates strong demand of houses not only for residences but also for investment. A down payment of at least 30 percent to buy a house makes an important buffer even if there is a significant decline in housing prices.
As far as local government debts are concerned, since the government owns a lot of companies, all of land, most of minerals and the rights to issue currency, these debts will not create the crises we are witnessing in the EU.
As to the possible crisis emerging from stronger dollar, hot money outflows and devaluation of RMB, since China implemented the capital control under securities entry, this will not have an unmanageable impact on China's capital market or the real estate.
Sometimes economy crisis can be defined as a sharp slowdown of economic growth. But this kind of economy crisis too will be not happen. In fact, the truth of Japan's stagnation is that Japan's GDP per capita is still a high of $50,000, which is a great achievement, considering its consistent problem of aging population.
But China's GDP per capita is only 10th of Japan's and its urbanization level is only 50 percent. China's economic growth potential has for a long time been hampered by inefficient institutional environment and therefore market-oriented reform will free it up and increase the speed of growth as China is a nation of industrious and studious people. And I believe this government is on the right track of improving the institutional environment and carrying out market-oriented reform.
The author is a lecturer at the Management School of Shanghai University and a research fellow at the China Europe International Business School Lujiazui International Finance Research Center.
