China’s April-to-June quarter results have proved that the country is growing economically. China’s rising economy has expanded 7.5 percent in the past year, on target with the government’s goal, and retail sales and factory output has risen even just in the month of June.
This change is positive, but was somewhat expected, as China’s government has created a plan to boost economic growth. These quarterly results simply reaffirmed that they are on the right track.
Dariusz Kowalczyk, a senior economist in Hong Kong, said regarding the results, “The Result is very good and shows the economy has recovered very well in the second quarter.” He also confirmed that the improvements were the result of the “targeted stimulus measures undertaken by the Chinese authorities.”
This boost has come after a recent decline in China’s economy due to lowered demands of exports. The economic lull inspired the government to increase consumption domestically and rebalance their growth model.
One of the changes made to boost the economy was to lower the Reserve Requirement Ratio (RRR,) the cash amount required by banks to keep in reserve in order to have money to lend to agriculture related businesses and smaller companies. Smaller companies also received cuts on their taxes.
While the growth is something to celebrate, China still needs to practice caution. The growing economy may be completely dependent on the stimulus changes, and the momentum could easily fade. Chang Jian, an analysist with Barclays, stated that, “…the recovery is quite dependent on government support”.
There is also the question as to how genuine the rising economy is. The property sector, making up about 16 percent of China’s GDP, is going through a downturn. The government is working on taking out “shadow banking,” where alternative lending and finances are given outside of the government. House sales have fallen 9.2 percent. While these facts should be lending to a shrinking economy, the economy continues to grow, putting it under speculation by some.
Some believe that the numbers are inflated, and that the GDP has truly only expanded by 6 percent rather than 7.5 percent. Some economists worry that the growth will plateau, or that the government’s stimulus work will not be enough to sustain the momentum.
One thing to hope for is that the economy’s growth will continue because of these changes, even without the government continually tending to it.
Banks have been encouraged to lend more willingly to companies that export goods, which should increase exports over time.
China also plans to build railways, roads and airports along the Yangtze river, which would enable the country’s less developed areas to more easily reach Shanghai, giving economic opportunity to a larger variety of citizens.
Only time will tell if the rising economy of China is genuine and long lasting. This growth, or lack of growth, will surely affect the global economy as well.
– Courtney Prentice