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Cover Stories Series 2014> Reform Initiatives Underway for 2015> Retrospect> Feature
UPDATED: July 21, 2014 NO. 30 JULY 24, 2014
Good Omens
Solid half-year data bode well for China’s economic outlook
By Zhou Xiaoyan

This was boosted by a rise in resident income, said Sheng, the NBS spokesman. He also pointed out that the income gap between urban and rural households was further narrowed in the first six months.

During the first half, retail sales grew 12.1 percent year on year to 12.42 trillion yuan ($2.02 trillion), quickening from the 12-percent growth registered for the first quarter, the NBS said. The actual growth rate was 10.8 percent with inflation deducted.

Acceleration of retail sales growth was enhanced by a strong performance in the online sector. In the first six months, online sales witnessed strong growth, surging 48.3 percent year on year to 1.14 trillion yuan ($183.8 billion).

Shen Jianguang, chief economist at Mizuho Securities Asia Ltd., said consumption has played a greater role in lifting the economy than investment.

"This is a major highlight of the half-year data. Consumption is gradually becoming the biggest driving force of GDP growth. China's restructuring efforts in past years have paid off."

Keeping watch

A report from Bank of China's Institute of International Finance said China still faces much downward pressure from the adjustment of the property sector, local government debts and overcapacity.

"In the future, China's fiscal policy will be more proactive to maintain stable growth while focus will be put on areas that can lift the economy in the short run and also help adjust economic structure in the long run. China's future monetary policy will be steady and yet appropriately loose, but not too loose. The scope of targeted monetary loosening may be broadened," read the report.

Many economists believe the slowing property sector poses the biggest risk to the economy.

Following a strong performance in 2013, China's real estate market has shown signs of cooling down.

Average real estate prices in the country's 100 biggest cities fell 0.5 percent in June from May, the second consecutive monthly drop this year, according to the China Index Academy Ltd., a Beijing-based research institute wholly owned by SouFun Holdings Ltd. In May, average prices edged down 0.32 percent from April.

The latest data from the NBS show that growth in real estate investment slowed in the first half of 2014 while sales and new construction fell. Real estate investment grew 13.1 percent year on year with inflation deducted—2.7 percentage points lower than the first quarter. During this period, new construction in residential property declined 19.8 percent year on year. Sales of commercial residential housing fell 7.8 percent year on year in terms of floor space and fell 9.2 percent year on year in terms of value.

"Better-than-expected second-quarter data don't mean China is faced with fewer risks. A cooling property market is casting a shadow over the broader economy," read a report from Société Générale.

Wang Qing, President of Shanghai Chongyang Investment Management Co. Ltd., said China's property sector has lost its investment value.

"If home prices drop sharply, the highly leveraged property sector will suffer from capital chain break, ending with a burst in the real estate bubble and a hard landing for the wider economy," Wang warned.

Wang Tao, chief China economist at UBS, said this round of housing price drops was not triggered by policy changes but by market forces.

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