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China's economy to see moderate growth

By Du Haitao (People's Daily)

16:34, August 23, 2011

Edited and translated by People's Daily Online

China's Purchasing Managers' Index (PMI) reached nearly 51 percent in July, down 0.2 percentage point from June. Analysts said that China's economy has entered a period of moderate growth after a smooth slowdown, paving the way for steady growth in the second half of the year.

The Purchasing Managers' Index is an indicator of financial activity reflecting purchasing managers' acquisition of goods and services

PMI stabilizing, downward trend in new orders sub-index reversed

The PMI sub-indices of production, inventories of finished goods, new export orders, purchasing prices and inventories of raw materials decreased in July, with the first two sub-indices down by more than 1 percent from June. Meanwhile, the sub-indices of new orders, backlog orders, procurement volume, imports, employment, and supplier delivery time rose less than 1 percent.

The China Federation of Logistics and Purchasing said in a report that the July PMI shows that the country’s economy is experiencing certain positive changes.

A slower month-on-month drop in PMI shows that China's economy is trending towards stabilization. The country’s PMI fell for four straight months to a 29-month low in July and has started stabilizing. The July index only dropped 0.2 percentage points from June, showing signs of rebounding. The 11 PMI sub-indices used to drop completely, but in July, five sub-indices dropped and six sub-indices rose. Furthermore, the July PMI was above the benchmark 50 percent, which will ease the market's cautious mood and enhance people's confidence in the economy.

China's economic growth will likely secure a new support from the rally in domestic demand. The new order index stood at 51.1 percent in July, which was 0.3 percentage points higher than a month earlier. The index has been in a downward trend since December 2010 despite a short-term rebound in March, with a considerable decline. The slight rebound in July perhaps means that the current domestic demand growth has secured a new support. The purchase volume, import and employment indices were all on the rise in July thanks to the rise in the new order index.

The rapid drop in the inventory index perhaps means that the inventory correction is about to end and then there will be a new round of inventory supplements. The inventory index has shown a volatile downward trend since the start of 2011. The raw material inventory index and the finished-goods inventory index both stood below 50 percent in July, considerably lower than that of a month earlier by about 2 percentage points and 1 percentage points, respectively.

Experts theorize that the current rise in the new order index and the fall in the finished-goods index mean a rosy economic perspective. The purchasing managers' index is expected to rebound in August. Factors such as stable consumption demand growth, increased investments in newly started projects and the accelerated construction of affordable housing projects will sustain the sound operations of the manufacturing sector in the second half.

China should continuously strive to adjust economic structure and promote economic transformation in second half

Cai Jin, director of the China Federation of Logistics and Purchasing, said that the changes in the Purchasing Managers' Index have exposed some potential problems in China's current economic development.

The inflationary pressure facing China is still high despite a weakened price growth momentum. The purchase price index has continued to fall back since March 2011, with a broader decline. However, the decline rate has considerably narrowed in July, standing at only 0.4 percentage points. Currently, the index is still as high as more than 56 percent, revealing that the current inflationary pressure is still high.

Small and medium-sized enterprises are hard to develop, and the prosperity index of domestic enterprises has declined. Since May of 2011, the PMI of small enterprises has been under 50 percent for three successive months, and the PMI of state-owned enterprises has also been lower than 50 percent for two successive months. On the contrary, although the PMI of the enterprises invested by Hong Kong, Taiwan, Macao and foreign countries has declined in 2011, it still maintains a level higher than 50 percent.

Cai said that the difficulties faced by China's small enterprises have increased in 2011. Especially, production costs have increased, financing has become even harder, market opportunities have decreased for them, and their risk-resisting capacities are still quite weak.

Developments of industries are gloomy, and a strong leading industry does not exist. Of the current 20 industries, the PMIs of 12 are higher than 50 percent, the PMI of one is at 50 percent, and the PMIs of seven are lower than 50 percent. Regarding the PMI distribution, the gaps between different industries are small. The PMIs of most industries with a PMI higher than 50 percent are at the level of 52 percent, and the PMIs of most industries with a PMI lower than 50 percent are at the level of 48 percent.

Zhang Liqun, a researcher from the Development Research Center of the State Council, believes that the PMI has declined for four successive months since April of 2011, and this foreshadows that China's economy is still in the course of re-adjustment and it is in alignment with the expected goal of "adjusting the structure and transforming the mode."

Currently, China should pay close attention to the trends of consumption, investment and export demand so that the economic growth could be re-adjusted steadily, Zhang said. Meanwhile, China should also strengthen the adjustment of structure, transformation of mode and implementation of reform and accelerate the construction of the new foundation for economic growth to promote a steady economic development.

Email|Print|Comments(Editor:刘晓宁)

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Alex Lewis at 2011-08-24109.158.65.*
This story contains no direct quotes, and offers no justification for the tendentious second sentence.Who are these optimistic "analysts" and "experts"?
  

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