Zhang Liqun

I. The Basic Features of the Economy’s Performance in the First Three Quarters and the Prospect for the Whole Year

1. Economic growth slowed down

Preliminary data indicated that the gross domestic product in the first three quarters totaled 9.3144 trillion yuan, which was a 9.5 percent year-on-year growth or 0.6 percentage points higher than in the same period of last year. This growth was 0.2 percentage points lower than that in the first half of this year and 0.4 percentage points less than in the first quarter.

2. Industrial growth remained high, but growth rate was slightly lower

In the first three quarters, the added value realized by industrial enterprises above designated scale across the country was 3.8775 trillion yuan, which was a 17 percent year-on-year growth. But the growth rate was respectively 0.7 and 1.6 percentage points lower than in the first half of the year and in the first quarter.

3. Corporate economic efficiency continued to improve

The profit realized in the first three quarters by industrial enterprises above designated scale across the country was 808.8 billion yuan, or 39.8 percent higher than in the same period of last year. The industrial sales-production ratio was 97.8 percent, or 0.2 percentage points higher year-on-year.

4. Investment in fixed assets grew slower

In the first three quarters, the social investment in fixed assets totaled 4.5102 trillion yuan, or 27.7 percent higher than in the same period of last year. The growth rate was respectively 15.3 and 0.9 percentage points lower than in the first quarter and in the first half of the year. Out of which, the urban investment in fixed assets was 3.8028 trillion yuan, or a 29.9 percent year-on-year growth. Some overheated industries saw their investment growth visibly declining. In particular, the iron and steel and cement industries respectively saw their investment drop by 65.5 and 43.4 percentage points from their first-quarter levels. The aluminum industry’s investment, which rose 39.3 percent in the first quarter, declined 6.5 percent. The real estate industry saw its development investment grow 28.3 percent, which was 12.8 percentage points lower than in the first quarter. The investment growth of agriculture, forestry, livestock and fishery was visibly higher. While the growth rate for the first three quarters was 21.4 percent year-on-year, it was 21 percentage points higher than in the first quarter.

5. Consumer market picked up

The total social retail of consumer goods in the first three quarters was 3.8439 trillion yuan, or 13 percent higher year-on-year. If price factor is deducted, the actual growth was 9.7 percent, or 0.6 percentage points higher over a year before.

6. The rise of personal consumer price stabilized

In the first three quarters, the personal consumer price rose 4.1 percent over a year before. In terms of commodity mix, food price rose 10.9 percent and in particular grain price hiked 28.4 percent. Housing price went up 4.4 percent, and those of tobacco, liquor and daily necessities and those of entertainment, education and stationery and related services respectively rose 1.3 percent and 1 percent. On the other hand, clothing, household appliance and service, medical service and personal necessities, transportation, communications and other commodities and services all saw their prices decline slightly. Out of which, clothing price dropped 1.4 percent, household appliance and service went down 1.5 percent, medical service and personal necessities declined 0.2 percent, and transportation and communications dipped 1.5 percent. In terms of dynamic trend, the personal consumer price that had been rising at a monthly accelerated pace began to change. The personal consumer price rose 5.2 percent in September over a year before, or a modest decline of 0.1 percentage points from the preceding month.

7. Foreign trade continued to grow drastically and foreign capital utilization increased

Foreign trade in the first three quarters totaled 828.5 billion U.S. dollars, which was 36.7 percent higher than in the same period of last year. Export value stood at 416.2 billion U.S. dollars or rose 35.3 percent, import value was 412.3 billion U.S. dollars or 38.2 percent higher. Trade surplus was 3.9 billion U.S. dollars. The contract value of foreign direct investment in the first three quarters rose 35.6 percent over a year before, and the actually utilized value was 48.7 billion U.S. dollars or 21 percent higher. At the end of September, State foreign exchange reserve totaled 514.5 billion U.S. dollars, which was 111.2 billion U.S. dollars higher than the level at the beginning of the year.

8. Urban and rural personal income increased fairly fast

In the first three quarters, the disposable personal income in the urban areas was 7,072 yuan. If price factor was deducted, the actual growth was 7 percent, a slightly slower pace compared with the corresponding previous period. The per capita cash income of the peasants was 2,110 yuan, which was an actual growth of 11.4 percent or 7.6 percentage points higher than in the same period of last year.

In summary, the economy’s performance in the first three quarters had the following three features:

1. The relations of economic aggregates were stabilizing

The rapid expansion of investment-driven demand has been one of the prominent problems of the economy’s performance since last year. Another closely related problem has been the rapid increase in money supply and the ensuing accelerated price hike. These problems have visibly come under control since May. First, investment growth clearly slowed down. Second, money supply also grew at a visibly slower pace. The year-on-year growth rate of M2 balance was 19.13 percent for both March and April. It declined to 17.74 percent in May, 16.33 percent in June, 15.57 percent in July and 13.6 percent in August. The year-on-year growth rate of the lending balance in Renminbi by financial institutions was 20.08 percent in March, 19.8 percent in April, 18.5 percent in May, 13.9 percent in June, 13.09 percent in July and 11.7 percent in August. Third, price increase was stabilizing. With the slowdown in demand growth, the price increase of the means of production was stabilizing. While the price of construction steel products began falling in April, the factory price of industrial products grew year-on-year by 6.4 percent in June, 6.4 percent in July and 6.8 percent in August. Compared with the situation before March this year, the growth rate was visibly stable. On the other hand, the personal consumer price index continued to rise compared with a year before, mainly due to the impact of the tail-perking factor and the price hikes of food. Data from the National Statistics Bureau indicated that of the 5.3 percentage point increase in the personal consumer price in August, 3.7 percentage points or 70 percent were caused by the tail-perking factor. In terms of category, food price hike accounted for 86 percent while non-food price increase accounted for 14 percent. If the tail-perking factor and the food price hike were deducted, the overall price level that reflected the overall supply-demand relationship only changed by about 0.3 percentage points. It is noteworthy that with the improvement of the living standard, the demand of food consumption was less and less elastic to income growth and in general had no links to the growth of money supply and investment. For the same reason, the measures that had been used to control demand growth were having no effect by and large. The basic measure to solve food price hike should be to increase supply, instead of suppressing demand. This measure is entirely different from that adopted to regulate the economy’s overall supply-demand relationship. Therefore, when it comes to the goals of regulation, it is necessary to distinguish food price from non-food price. The result of demand regulation is mainly manifested in the change of non-food price. This is also why some countries are using the core inflation rate. In the perspective of this concept, the change in the relationship of China’s economic aggregates has been quite stable.

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