China confident despite volatile stock markets
The world’s economic wellbeing, especially the health of emerging markets, is increasingly tied to China’s performance, and while its economic growth rate remains high compared to other regions in recent years it has slowed down.
According to data from the World Bank its gross domestic product (GDP) growth slowed from 10.6% in 2010 to 7.4% in 2014. The country has set a target of about 7% for 2015.
The drop off in China’s growth figures is seen as one reason for the recent declines in commodities as its demand for raw materials has moderated. The embassy for the People’s Republic of China said in a release on Friday that “economic fundamentals are sound with stable employment, prices, grain output and income growth”.
It highlighted that the country had achieved the 7% growth target in the first half of the year. “The property sector, a key contributor to economic growth, saw its sales growing strongly in June and the second quarter, and infrastructure investment accelerated in June for the first time over the last three months,” the statement said.
In 2013 the central committee of China’s communist party, announced it was embarking on wide-ranging economic reforms, including centering on “the role of markets in allocating resources” and reforming its numerous state owned entities.
This has come hand in hand with the country’s shift from a manufacturing and investment led economy to one driven by consumption and services. According to the embassy the services sector became a main economic driver, growing at 8.4% and outpacing general GDP growth. It accounts for 49.5% of the GDP, up 2.1 percentage points compared to the same period last year, the statement said.
It also noted that consumption has played a bigger role in determining growth, contributing 60% of first half GDP growth, an increase of 5.7 percentage points compared to the same period last year. The statement noted the growing “vitality of the [the] private economy” – which grew by 8.1%, as well as the increase in private fixed asset investment, which grew by 12.5% and accounted for over 65% of total investment.
“Despite the uncertainties brought by a sluggish recovery of the global economy and domestic problems from the economic restructuring, we have confidence that China can deliver the economic and social development targets set for the whole year, given that China has a huge market with great potential and high resilience, and its industrialisation and urbanisation will generate large room for future growth,” it said.
Recent turmoil on Chinese stock markets has, however, promoted the state to intervene in a number of ways including freezing the trade in shares of hundreds of companies.
Market analysts have questioned the interventions, arguing that they erode the credibility of China’s commitment to the reforms.
The state’s steps have also not succeeded in completely easing the trouble. On Monday Chinese shares continued to fall, as manufacturing data came in lower.
Bloomberg reported that the final Caixin manufacturing Purchasing Managers’ Index slipped to 47.8 in July, the lowest since July 2013. According to the news agency the Shanghai Composite Index slid 2.7% in the early afternoon, “poised for the lowest close since July 8”.
It quoted Wang Zheng, the Shanghai-based chief investment officer at Jingxi Investment Management Co who said: “The recent economic data have made investors believe that the market isn’t supported by earnings or fundamentals, particularly when the market is in a downward cycle … Even after the decline, some stocks are still expensive.” - Additional reporting by Bloomberg..