Can China achieve its annual economic growth target?, After the mid-term exam, the whole year | China | Economy

The report card of China's economy in the first half of the year has been handed over. What are the challenges and motivations for the second half of the year? Can the expected goals be achieved throughout the year?

Fan Limin, Chief Asian Economist at HSBC Global Research, recently answered the above questions one by one in an interview with China News Agency's Guoshi Express. He believes that China's economic activity may gradually rebound in the second half of this year, and economic growth in the second half of the year should have sufficient momentum to drive the annual growth rate of the Chinese economy to over 5%.

The following is a summary of the interview transcript:

Economic activity is expected to gradually rebound in the second half of the year

How do you evaluate China's economic performance in the first half of this year?

Fan Limin: China's economic activity may gradually rebound in the second half of this year. At the beginning of the second quarter of this year, there were signs of economic growth slowing down, but the Chinese government had already launched a series of targeted stabilization measures at that time, and it is expected that the effects of these measures will gradually become apparent.

However, obstacles to economic recovery still exist. For example, in the context of sluggish global demand, it is difficult for exports to experience a significant rebound. In terms of domestic demand, it may take some time for the real estate industry, as a pillar of the economy, to experience a stronger recovery. But the good news is that the bottom of the cycle should have already passed.

Is China a Direct Train: Looking ahead to the second half of the year, can China achieve its growth target of around 5% this year? Where are the difficulties and challenges? Where is the power?

Fan Limin: In the second half of the year, economic growth should have sufficient momentum to drive China's annual economic growth rate to reach over 5%. The main challenge currently faced comes from the external environment, and the global demand outlook is still full of uncertainty, which is also one of the reasons for the relatively weak investment of manufacturing producers in this cycle.

So far this year, consumer spending on services has been a highlight, and we expect a continuously improving labor market to help boost commodity spending and overall confidence.

The country is a direct train: In your opinion, what does China's economic performance this year mean for Asia and the world? Can China continue to play the role of a driving force for global economic growth?

Fan Limin: Although China's economic recovery has not yet met market expectations since the beginning of this year, the growth rate is still faster than the global economic growth rate. From this perspective, China has still contributed to global growth this year.

Due to China's growth being more driven by the service industry rather than infrastructure activities this year, it does mean that the impact on the world economy is not as direct as before. For example, the relatively weak performance of the industrial sector has suppressed global commodity prices, which is not very favorable for commodity exporters but good news for importers. In addition, China will also have an impact on global commodity prices, which will help alleviate inflationary pressures in many economies.

China has not fallen into the so-called "deflation"

The country is a direct train: global inflation is high, but China's situation is stable, with CPI operating at a low level. Do you think China has experienced so-called "deflation"? Why?

Fan Limin: China has not fallen into complete deflation. Indeed, the price pressure in China is very low, especially compared to many developed economies, but this is to some extent related to the cyclical nature of China's recovery. From this perspective, as the economy recovers, inflation should gradually increase in the coming year.

But this does not mean that China can ignore the related risks. The Chinese government has started to adopt relatively loose policies to address this issue, so China may experience mild inflation in the coming years.

Relaxing real estate policies does not stimulate speculative activities

The country is a direct train: Since the beginning of this year, the central bank, the Ministry of Housing and Urban Rural Development and other departments have introduced relevant measures to stabilize the real estate market. What do you think can be the role of this in China's real estate market?

Fan Limin: The real estate market still holds a crucial position in the Chinese economy, so recent market adjustments will inevitably have an impact on economic growth. We believe that the series of measures recently introduced by the Chinese government should help the real estate market regain its footing, but a comprehensive recovery may take some time and may not begin to emerge until 2024.

It should be understood that the original intention of this round of policy relaxation is not to stimulate real estate speculation. The policy measures introduced so far are aimed at gradually improving the real estate market, rather than rapidly and significantly stimulating housing prices, so their effects will gradually become apparent over time.

The country is a direct train: Recently, the Chinese government has introduced policies related to the private economy, and what are the key points to boost the confidence of private enterprises? What aspects should we focus on?

Fan Limin: In recent years, private investment has received widespread attention. Private investment data is relatively weak, partly due to many manufacturers facing a more severe export situation, and the weak real estate market has also put some private developers in trouble.

Once export demand rebounds again and the real estate market recovers, private investment should improve accordingly. Some recent measures taken by the government, such as creating a fair market environment for Internet companies, will eventually help stimulate private investment.

In addition, funds are also important for accelerating private investment more widely. To improve the capital market access and credit channels for small and medium-sized enterprises, policies in this regard should help improve the investment prospects of the private sector.

The global economy is difficult to decouple

The country is a direct train: The current external environment is complex and ever-changing, and some countries advocate for the so-called "de Sinicization" and "decoupling and chain breaking". What impact does this have on the global industrial and supply chains? What is the position of the Chinese market in the global industrial and supply chains?

Fan Limin: There has been a lot of discussion about decoupling, but the economic data we have seen suggests that the reality may be more complex and subtle. For example, China's global share in exports and foreign direct investment is still increasing, and China is also becoming an increasingly important source of component supply for manufacturers in other regions. There are indeed some examples of investment shifting outside of China, but overall, China's central position in global manufacturing continues to expand.

In addition, investment in some industries has shifted from China to ASEAN or Latin America, and such changes in investment are often related to labor cost considerations. As labor costs in China rise, the migration of these investments will naturally occur to some extent. On the contrary, China is also making progress in more high-end manufacturing sectors, such as electric vehicle production.

Therefore, despite many reports, it is difficult to prove that the global economy is "decoupling" from most trade and investment perspectives. In fact, considering the various challenges we have faced in recent years, the global production system centered around China can be said to have very strong resilience.

Is it good news for emerging markets, especially China, as the Federal Reserve's interest rate hike is coming to an end?

Fan Limin: The end of the Federal Reserve's interest rate hike cycle is generally good news for emerging markets, but this does not mean that the Federal Reserve will soon start cutting interest rates. For many Asian economies with interest rates far below those of the United States, the high federal funds rate will still be a resistance to economic growth.

For China, this issue is not so urgent because compared to typical emerging markets, the Chinese economy is less directly affected by US dollar financing rates. Compared to smaller neighboring economies, China's vast domestic financial system provides a greater buffer zone to cope with changes in US dollar interest rates.

But this also means that the direct impact of the US interest rate cut on the Chinese economy will be smaller than on other emerging markets. Ultimately, the size of China's economy is so large that its growth rate is mainly determined by domestic conditions, and the overall impact of changes in the Federal Reserve's interest rates is not significant.