Q2 Growth Close to 8%, More Stimulus Policies in Doubt

China's Q2 growth appears to be close to the targeted 8% of Beijing’s economic stimulus projections. There is still debate over whether to continue the first half’s easy monetary policy or to implement anti-inflation steps in the second half of this year, but it seems unlikely any new economic stimulus will be introduced.

The economic year’s first half is up in less than a week, and in about two weeks the second quarter performance will be revealed. On Tuesday, an article signed "Guo Tongxin" (a pseudonym) on the website of the National Bureau of Statistics (NBS) forecast the results.

The author, who is likely an expert from NBS or some corresponding agency, believes that, according to major economic indicators in April and May, Q2 GDP will be close to 8%, showing an apparent tendency of rebound. Chief macroeconomic analyst Li Huiyong, from Shenyin Wanguo Securities Research Institute, says the statistics on the growth rate in this article may be close to the final result.

The article discloses that the bottom of this round of the economy was probably in last year’s fourth quarter and the first quarter of this year. Statistics show that GDP increased 2%, 0.1%, 1.5% in Q3, Q4, and Q1, and is expected to have risen 2% Q2.

A similar conclusion can be drawn based on industrial production data, as well as physical indicators such as steel production and power generation.

There are, however, still issues of concern. Lack of demand is still a major problem in the current economy. Other risks include excess capacity in some industries leading to underemployment, increased competition, and declining product prices that may dampen firm’s willingness to investment and may result in deflation.

On June 9, the price of Brent crude oil was $ 68.8/barrel, up 104.9% over the lowest price and 85.5% over the price at the end of last year. The NBS article stresses that the continuous rise of prices of primary products in the international market will add to China’s imported inflation.

In addition to risks mentioned in the article, some new signs in the micro-level are troubling. Apart from the vast surge in credit and increasing unemployment pressure over the past six months, People's Bank of China survey results released in early June show that with the reduction in people's income and the expanding uncertainty of future revenue, urban residents are becoming more cautious in their consumption and the urge to save has become stronger. The government fears that over-prudent consumption will hinder domestic demand increase.

In accordance with the past practice, the government is now setting basic policy for the next half year, but in the present complicated economic environment decision-making is anything but easy.

The range of opinions in the government, industry, business, and the citizenry over future policies is vast on whether to introduce new economic stimuli or maintain a relaxed monetary policy, how to guard against inflationary/deflationary pressures, and how to speed up structural adjustment.

But given current economic developments, the rumored news of a second round of macro-economic stimulus policies seems unrealistic.

Some analysts believe that the second quarter growth rate of 8% means that the most difficult times are behind us and that policies in the second half year may veer from "rescue" to "maintenance," shifting to economic restructuring and upgrading the quality of economic growth. To achieve a steady growth of 8% or better, policies should be introduced to consolidate the existing achievements in the second half year. Probably relaxed monetary policy won’t change before the full recovery of economy and a sharp rise in prices.