The National Bureau of Statistics reported last week that China's top-line GDP growth rate in the first quarter was 6.4 percent, at the upper end of the government's target of 6 to 6.5 percent growth for 2019. This faster-than-expected growth gives policymakers some breathing room to continue a stable monetary policy and to implement fiscal policies aimed both at transforming the economy and at reducing the risks of accumulated debt.
Chinese policymakers are dealing with the hard dilemma of simultaneously transforming the long-term nature of the economy while avoiding short-term inflation or recession. To transform the economy, the nation needs to continue to reduce outstanding debt levels and shift from overcapacity heavy and extractive industries to a more innovative, consumer-focused economy. The danger is that moving too fast in that direction could throw lots of people out of work or cause the financial collapse of companies.
This quarter's data show that China is avoiding this short-term dangers while still moving toward long-term goals.
The consumer inflation rate was 1.8 percent year-on-year and producer prices went up only 0.2 percent. A standard rule of thumb used by central bankers worldwide is that the inflation rate should be targeted at about 2 percent per year. This rule is actually built in to the mandate of the European Central Bank. So, the stable monetary policy of the People's Bank of China, the nation's central bank, is working.
The March unemployment rate in urban areas was 5.2 percent, slightly below the level last year. Most economists define "full employment" as anything below 6 percent, so we are not seeing significant problematic unemployment even during a period of major economic transformation.
Other commonly used disaggregated growth measures are consistent with the top-line measured GDP growth number. For example, production and supply of electricity, thermal power, gas and water increased by 7.1 percent in the quarter. Plus, value-added index of transport, storage and post increased by 7.3 percent.
A closer look at the highest growth sectors shows that the economy is moving toward the long-term goal of shifting away from a development strategy based on heavy investment in industry and infrastructure to one based on services and domestic consumption. Also, more productive industries that turn out higher-value added goods are growing at a much faster rate than traditional heavy industry.
Among large companies, State-owned enterprises grew 4.5 percent year-on-year while shareholding enterprises grew almost twice as fast, at 7.8 percent. So, strong progress is being made toward the goal of promoting private enterprise, which was reinforced by many policies announced at last month's meeting of the National People's Congress.
Services are growing rapidly. The value-added of the tertiary sector, which is mainly services, grew from 56.7 to 57.3 percent of GDP from the same period last year. The Index of Services Production increased 7.4 percent year-on-year, higher than the growth rate of overall GDP.
Overall retail sales of consumer goods also grew at 8.3 percent. Sales of upgraded consumer goods witnessed fast growth, with the highest rates concentrated in upgraded products such as cosmetics, phones and computers.
And, high-tech services grew at an astonishing rate of 21.2 percent. In preparing for consumer 5G telecoms next year, the output of mobile communications base stations grew 153.7 percent.
The data also show strong movement toward the government's goal of creating an ecological civilization. New energy automobiles and solar cells grew by 48.2 percent and 18.2 percent, respectively. Sales of urban rail vehicles grew by 54.1 percent, showing the continued investment in environment-friendly urban mass transit. According to NBS preliminary estimates, the share of consumption of clean energy such as natural gas, hydropower, nuclear power and wind power in total energy consumption in the first quarter was 1.5 percentage points higher than that of the same period last year. Energy consumption per unit of GDP went down by 2.7 percent year-on-year.
Total investment in fixed assets grew by 6.3 percent, with private investment growing at 6.4 percent, slightly faster than the overall number. This is especially significant in the light of last year's fears that private investment in the economy might collapse. So, the government's efforts to strengthen the private sector appear to have borne fruit.
Investment in high-tech manufacturing rose by 11.4 percent and investment in high-tech services rose 19.3 percent, both far higher than overall investment growth. This shows that the shift toward advanced manufacturing and services is well underway.
And, despite ongoing tensions, the total value of imports and exports rebounded sharply in March, reaching 9.6 percent higher than March 2018. So, overall trade grew by 3.7 percent year-on-year in the quarter despite low growth rates in January and February. Exports of electrical and mechanical products, which are higher value added, grew by 5.4 percent in the quarter. And, private sector trade grew 9.9 percent, far more than the overall growth rate.
I am worried to see that total investment in real estate grew by 11.8 percent year-on-year. Having lived through the 2008 financial crisis in the United States, I'm wary of continued high investment in real estate in a time when property prices are already astonishingly high and China's living space per person has already surpassed that in Europe.
The bottom line is that fiscal and monetary policies combined with policies to promote structural transformation have achieved a stable macroeconomic situation and steady movement toward supply side upgrading.
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