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No fear of a hard landing (2)

By He Weiwen (China Daily)

13:54, July 28, 2012

First is the decline in fixed investment, which grew only by 20.4 percent year-on-year, that is, 5.2 percentage points lower than in the first half of 2011. The main contributing factors to this slower growth were declining real estate investment and decreased railroad construction. The former is the result of strict controls aimed at deflating bubbles and the latter a necessary adjustment after exceptionally high growth in previous years.

However, fixed investment in other industrial sectors grew by 23.8 percent. Total fixed investment was 15.07 trillion yuan ($2.36 trillion), or two thirds of the GDP, still the world's highest. These two changes, combined with impressive industrial fixed investment, are actually healthy signs for the Chinese economy.

The second economic driver is domestic consumption. Recent figures show the total retail volume was up 14.4 percent year-on-year. With a much lower consumer price index, the real growth rate hit 11.2 percent, 3.4 percentage points higher than the GDP growth. Another indicator of domestic consumption, auto sales, was up 9.1 percent, too. This means consumption is growing fast, a good sign as Beijing tries to rebalance the economy away from export-driven growth toward higher domestic consumption.

The third is foreign trade, which fell sharply in the first half because of the European Union debt crisis and vulnerable world economic recovery. As a whole, imports and exports grew just 8 percent year-on-year compared to 25.8 percent in the first half of 2011. The net export downturn was a major factor dragging down the Chinese economy.

But a modest rebound is expected once the central government's recent policy actions are gradually implemented in the second half of the year. The GDP slowdown is likely to bottom out during the third quarter, returning to 8 percent and slightly higher than 8 percent during the fourth quarter, thus taking the entire year's growth to about 8 percent. Needless to say, no recession is on the horizon, let alone a potential "crash".

China's imports grew by only 6.7 percent, slower than the 9.2 percent increase of exports in the first half. But imports from the United States grew by 7.9 percent. An empirical study of previous Chinese economic downturns and US exports to China shows American exports to China did not necessarily slow down even in "poor" years. During the global financial crisis, US exports to the world fell by 18 percent, while its exports to China fell by 0.3 percent only.

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