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Agricultural Development Bank of China
Economy

Interview: China's robust Q1 growth bolstered by fiscal stimulus, further reform: scholar

April 22, 2019


Abstract : China's buoyant economic expansion for the first quarter (Q1) has been largely propelled by the country's fiscal stimulus as well as energetic reform and opening-up, a U.S. scholar has said.

by Xinhua writer Ma Qian

NEW YORK, April 19 (Xinhua) -- China's buoyant economic expansion for the first quarter (Q1) has been largely propelled by the country's fiscal stimulus as well as energetic reform and opening-up, a U.S. scholar has said.

"The greater emphasis on both fiscal measures and on supply-side measures, in contrast to purely demand management measures, is somewhat of a break with the past and deserves to be highly applauded," Sourabh Gupta, a senior fellow at the Washington-based Institute for China-America Studies, told Xinhua in an interview on Friday.

China's gross domestic product (GDP) growth notched a rate of 6.4 percent year on year in the first quarter, topping market forecasts and on par with that of the previous quarter, the National Bureau of Statistics (NBS) reported Wednesday.

The sturdy expansion was mainly driven by a striking 8.3-percent growth in retail sales of consumer goods year on year, which constitutes an overwhelming 65.1 percent in the quarterly GDP, among major indicators that fared better than expectations.

Meanwhile, a 7-percent increase in the tertiary sector, marking the strongest growth in added value, and a significant 6.5-percent upswing in industrial output for the first quarter also indicated improving economic conditions, especially an expanding manufacturing sector, which Gupta viewed as "a very good sign."

Such indicators showed that "the darkening cloud over the Chinese economy is passing and it is once again headed for a period of sustained and self-sustaining private sector-led growth," the scholar said.

To reach such an encouraging growth, Gupta believed that the Chinese authorities have struck a "delicate and correct" balance between introducing supply-side measures, such as tax incentives and reduction of fees, and demand management measures, such as loosening credits.

He added that the balance "between excess stimulus and policy passivity" has also been well maintained by the central government in the face of downside risks, amid market concerns over domestic growth, trade tensions with the United States and a potential global economic slowdown.

"The Chinese economy was always capable of weathering its impact and these macroeconomic numbers show that this is indeed the case," said the China expert.

In targeted moves to energize market entities, China has implemented massive tax and fee cuts for both enterprises and individuals, so as to ease corporate burdens and spur market vitality.

Following colossal tax and fee cuts of around 194 billion U.S. dollars in 2018, China will reduce the tax burdens and social insurance contributions of enterprises by approximately over 298 billion dollars in 2019.

First-quarter tax revenue growth dropped 11.9 percentage points year on year, owing to the tax exemption policies, according to the Ministry of Finance on Tuesday.

The second reason for China's robust growth is the liberalizing measures that have been introduced over the past year, particularly China's solid efforts to further reform and open up, Gupta noted.

"This was best encapsulated by the passage of the Foreign Investment Law this March. These liberalizations have ... given the economy a lift," said the long-time China watcher.

The scholar believed that China's consistent focus on reform and opening-up would continue to empower its economic trajectory upward in a sustainable way.

"I believe China is in an actively reformist policy phase right now and has been energetically seized of the imperative to transition from an investment-led growth model to a more productivity-led and consumption-based model," he said. "This will keep China's robust growth on a sustainable footing."

As the NBS set China's GDP growth rate at a range of 6-6.5 percent for 2019, Gupta expected the growth pace for the next two quarters to be within the mid-range of the new target, and to close out the year near the high range.

Gupta said China's economic performance in the first quarter has injected optimism into global markets, as China has been "a disproportionately large contributor to global growth" since the 2008 global financial crisis.

"Considering that the cyclical growth prospects in advanced economies is decidedly mixed ... The robust growth in Q1 in China will certainly buoy market expectations," said the scholar.

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Keyword: fiscal-policy china-economy

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