China Finance| Yanxiang: The quality and quantity are stable to promote economic growth

Yan Xiang, Chief Economist of Huafu Securities, This article was published in China Finance, Issue 09, 2024

In the first quarter of this year, the mainland's GDP increased by 5.3% year-on-year, and China's economy has made a good start with a clear upward trend. It can be seen that behind the strong and powerful economic growth, structural transformation and upgrading have been continuously promoted, the quality of development has been continuously improved, the transformation of new and old development momentum has been accelerated, and the development of new and high-quality productive forces has achieved positive results. China's economy continued to pick up in the first quarter and got off to a good start. According to preliminary calculations, the GDP in the first quarter of 2024 will be 296299 billion yuan, a year-on-year increase of 5.3% at constant prices, and the growth rate will be 0.1 percentage points faster than that in the fourth quarter of last year. From the demand side, the endogenous growth momentum of the mainland economy continued to increase in the first quarter, and the contribution rate of domestic demand to economic growth reached 85.5%. First, with the implementation of policies related to expanding domestic demand and promoting consumption, the release of residents' consumption demand has accelerated. In the first quarter, final consumption expenditure contributed 73.7% to economic growth, driving GDP growth by 3.9 percentage points. In addition to the continuous expansion of market sales at the aggregate level, the rapid growth of service consumption and the strong demand for holiday travel are significant bright spots. In the first quarter, retail sales of services increased by 10.0% year-on-year, 6.0 percentage points higher than the growth rate of retail sales of goods in the same period, and the number of domestic tourism trips and domestic tourism revenue during the Spring Festival increased by 34.3% and 47.3% year-on-year respectively. Second, major projects have played a significant driving role, and the growth rate of fixed asset investment has accelerated. In the first quarter, the national investment in fixed assets increased by 4.5% year-on-year, a significant increase of 1.5 percentage points over the previous year. Among them, infrastructure investment and manufacturing investment increased by 9.9% and 6.5% respectively. Private investment continued to recover, with a year-on-year increase of 0.5% in the first quarter, an increase of 0.9 percentage points over the previous year, showing that the development momentum and confidence of private enterprises have been significantly enhanced. From the perspective of the supply side, agriculture in the primary industry has developed steadily, the industry in the secondary industry has rebounded significantly, and the service industry in the tertiary industry has played a prominent role as a "ballast stone". From the perspective of industry, market demand has gradually picked up, and industrial production has continued to accelerate. In the first quarter, the added value of industrial enterprises above designated size increased by 6.1% year-on-year, 1.5 percentage points faster than that in 2023, and 37 of the 41 major industrial industries achieved year-on-year growth, with an increase of more than 90%, an increase of 24.3 percentage points compared with the fourth quarter of last year. From the perspective of the service industry, the construction of a new service industry system has been continuously promoted, and the supporting role of the service industry in the economy has been further enhanced. In the first quarter, the added value of the service industry increased by 5.0% year-on-year, accounting for 59.0% of GDP, contributing 55.7% to national economic growth, driving GDP growth by 2.9 percentage points. The digital economy is booming, and modern service industries such as information technology have maintained a strong momentum of development. In terms of foreign trade, the cultivation of new drivers of foreign trade growth has been accelerated, and global competitiveness has continued to increase, pushing the scale of imports and exports to a new level. In the first quarter, the mainland's trade in goods made positive progress, with the total value of imports and exports exceeding 10.17 trillion yuan for the first time, a year-on-year increase of 5%, a new high in six quarters, of which exports increased by 4.9 percent and imports increased by 5 percent, respectively 4.1 and 2.3 percentage points faster than the fourth quarter of last year. At the same time, China's foreign trade market layout is diversified and parallel, and high-level opening-up has been further promoted. In the first quarter, the mainland's imports and exports to the Belt and Road countries increased by 5.5 percent, 0.5 percentage points higher than the overall value, accounting for 47.4 percent of the total import and export value. Made in China and the Chinese market continue to provide high-quality products and broad opportunities for global economic development. The policy force has been effective, the industrial economy has performed well, and industrial growth is a bright spot in the economic development in the first quarter. In the first quarter, the total industrial added value increased by 6% year-on-year, 0.7 percentage points faster than the GDP growth rate, and also increased by 0.8 percentage points compared with the fourth quarter of last year, and the industrial growth rate hit a new high in 11 quarters, showing a sustained upward momentum. Judging from the growth of physical volume indicators, in the first quarter, the electricity consumption of the whole society increased by 9.6 percent, and the industrial electricity consumption increased by about 8 percent; among the 619 major industrial products in the statistics, the output of 406 products increased, with an increase of 65.6 percent, an increase of 5.4 percentage points over the fourth quarter of last year. The strong performance of the industrial economy in the first quarter fully reflected the simultaneous improvement in domestic and foreign demand, and the significant boost in business confidence. First, there have been positive changes in both domestic and foreign demand, which have strongly supported industrial growth. From the point of view of external demand, since the beginning of this year, the world's major manufacturing PMI has shown signs of recovery, the mainland's export growth rate in the first quarter also achieved a positive growth of 4.9 percent; the export delivery value of industrial enterprises from a decline to an increase, an increase of 0.8 percent in the first quarter, compared with the year-on-year decline of 2.2 percent in the fourth quarter of last year, up 3.0 percentage points, the export growth of the industry is more than seventy percent, and 28 of the 39 major industrial industries with exports have achieved growth. From the perspective of domestic demand, the added value of the downstream consumer goods manufacturing industry increased by 4.2% year-on-year, a significant increase compared with 2023. Second, the favorable policies in the early stage continued to take effect, effectively boosting business confidence. In March, China's manufacturing PMI index was 50.8 percent, returning to the expansion range, and the production and operation conditions of enterprises of different sizes have improved, and the PMI index of large, medium and small enterprises is above the critical value for the first time in nearly a year. Recently, a series of policies have been implemented, which is expected to further accelerate the industrial economy and build a solid foundation for the development of new productive forces. Since 2024, a series of policies on promoting large-scale equipment renewal and trade-in of consumer goods have been introduced: on March 13, the State Council issued the "Action Plan for Promoting Large-scale Equipment Renewal and Consumer Goods Trade-in", requiring that by 2027, the scale of equipment investment in industry, agriculture, construction, transportation, education, cultural tourism, medical and other fields will increase by more than 25% compared with 2023; on March 27, the Ministry of Industry and Information Technology and other seven departments jointly issued the "Implementation Plan for Promoting Equipment Renewal in the Industrial Field" On April 7, the People's Bank of China announced the establishment of a 500 billion yuan quota of scientific and technological innovation and technological transformation re-loans, aiming to encourage and guide financial institutions to increase financial support for small and medium-sized technology-based enterprises, technological transformation and equipment renewal projects in key areas; on April 16, the State Administration of Financial Supervision and Administration, the Ministry of Industry and Information Technology, The National Development and Reform Commission jointly issued the Notice on Deepening Financial Services for the Manufacturing Industry to Help Promote New Industrialization. The continuous implementation of relevant policies and measures will effectively promote the high-quality development of the industrial economy, and take this as an important starting point to promote scientific and technological innovation and the development of new productive forces. From the perspective of structural changes in economic growth, the mainland's economic transformation and upgrading trend has continued, structural adjustment has achieved positive results, the innovation-driven development strategy has been implemented in depth, and high-quality development has been promoted in an orderly manner. From the perspective of new industries and new products, emerging industries continue to accelerate their development, and the cultivation of new products and new kinetic energy is accelerated. First, from the perspective of different industries, the development momentum of emerging industries is strong. In the first quarter, the added value of high-tech manufacturing increased by 7.5% year-on-year, 1.4 percentage points higher than the average level of all industries above designated size, and 2.6 percentage points faster than the fourth quarter of last year. The information transmission, software and information technology services with the highest technology content in the service industry increased by 13.7% year-on-year in the first quarter, an increase of 2.5 percentage points over the fourth quarter of last year, and the growth rate was significantly higher than the overall GDP growth rate. Second, new products continue to emerge, and green manufacturing maintains a high growth rate. The output of high-tech products continued to grow rapidly, and the output of 3D printing equipment, integrated circuits, and service robots increased by 40.6%, 40.0%, and 26.7% year-on-year respectively. Under the concept of green development, the output growth rate of related products is still relatively fast, the output of new energy vehicles still maintained a year-on-year increase of 29.2% on the basis of the rapid development in previous years, and the output of charging piles related to it increased by more than 40%, and the growth rate of polysilicon and monocrystalline silicon related to photovoltaics is still as high as more than 50%. From the demand side, the consumption structure has been continuously optimized and upgraded, and new investment has shown a good momentum of development. From the perspective of consumption, residents' consumption has expanded to improve quality and efficiency, and digital and intelligent transformation has stimulated consumption potential. The consumption structure of mainland residents has continued to shift to the consumption of goods and services, and the per capita consumption expenditure on services has grown rapidly, with a year-on-year increase of 12.7 percent in the first quarter, faster than the 8.3 percent growth rate of total consumption expenditure, and the proportion of service consumption expenditure is also increasing, accounting for 43.3 percent of the per capita consumption expenditure in the first quarter, an increase of 1.6 percentage points over the same period of last year. The penetration of new consumption is accelerating, new business formats and new models are growing strongly, offline physical retail stores are promoting the continuous integration of new technologies such as digital intelligence and consumption scenarios, and new consumption models such as online live e-commerce and instant retail are developing rapidly. From the perspective of investment, the growth rate of investment in high-tech industries has increased significantly, and new drivers of economic growth have been actively developed. In the first quarter, investment in high-tech industries increased by 11.4 percent year-on-year, 6.9 percentage points higher than total investment. Among them, the investment in high-tech manufacturing increased by 10.8 percent year-on-year, 0.9 percentage points higher than that in manufacturing, and the investment in high-tech services increased by 12.7 percent year-on-year, 11.9 percentage points higher than that in the service industry. The development of foreign trade has further highlighted the new trend of the mainland's economy rising qualitatively and steadily, and its international competitiveness is constantly increasing. With the gradual advancement of the transformation of old and new economic momentum, the in-depth development of scientific and technological innovation and industrial innovation, the mainland's export momentum is constantly moving from Made in China to Created in China, and new advantages in foreign trade continue to accumulate and grow. In the first quarter, the mainland's exports of mechanical and electrical products reached 3.39 trillion yuan, an increase of 6.8%, accounting for 59.2% of the total export value, of which the export of high-tech products increased by 3.3% year-on-year, an increase of 9.1 percentage points over the whole year of 2023, and the exports of automobiles, integrated circuits and ships increased by 21.7%, 24.2% and 113.1% respectively. From the "old three" in the past to the "new three" with high technology and high added value, the transformation and upgrading of the economic structure and the continuous improvement of scientific and technological innovation capabilities have injected new momentum into the high-quality development of foreign trade. Relying on the favorable environment to accelerate the cultivation of new quality productivityLooking ahead, with the continuous recovery of domestic vitality, it is expected that China's economy will continue to pick up and improve. Among them, "relying on quality to promote quantity stability" will increasingly become an important feature of China's economic development in the future. The current favorable economic situation and policies will strongly support the accelerated cultivation of new quality productive forces. First, it is expected that the overall economic recovery will gradually accelerate after the second quarter. From the perspective of domestic demand, positive factors continue to accumulate and increase, residents' income grows steadily, "May Day" and other holidays are expected to promote the continuous release of residents' consumption potential, manufacturing investment boom rebounds, enterprises are expected to improve, and follow-up production and business activities are expected to continue to be active. In addition, with the gradual implementation of policies such as large-scale equipment renewal and trade-in of consumer goods, investment and consumer demand are expected to increase, thereby supporting a further economic recovery. From the perspective of external demand, the global economy has shown signs of recovery, and the global manufacturing PMI was 50.6% in March, rebounding for three consecutive months. In the future, the destocking of developed economies is approaching an inflection point, the increase in investment in manufacturing in Europe and the United States, and the expectation of interest rate cuts will support the global manufacturing industry, which is expected to drive mainland exports to continue to rebound. Second, the new quality of productivity will effectively improve the quality of economic development. At present, the mainland economy is still in a new stage of transformation and development, and accelerating the cultivation and development of new quality productivity is the internal requirement and important focus of promoting economic transformation and high-quality development, and vigorously promoting the construction of a modern industrial system and accelerating the development of new quality productivity will be the primary goal throughout 2024. The government work report also pointed out that it is necessary to vigorously promote the construction of a modern industrial system and accelerate the development of new quality productive forces. In the future, the development of new quality productivity will further promote the optimization and upgrading of industrial and supply chains, and effectively improve the quality of economic development.

Third, the development of emerging industries and future industries is expected to accelerate. The government work report proposes to actively cultivate emerging industries and future industries, consolidate and expand the leading advantages of intelligent networking, new energy vehicles and other industries, accelerate the development of cutting-edge emerging hydrogen energy, new materials, innovative drugs and other industries, and actively build new growth engines such as biomanufacturing, commercial aerospace, and low-altitude economy; Relevant support policies have been implemented in detail, taking the low-altitude economy as an example, many departments have recently expressed their intention to promote the development of low-altitude economic industries and accelerate the creation of a new engine for low-altitude economic growth. Under the requirements of high-quality economic development and policy support, scientific and technological innovation and R&D investment will continue to increase, and the development of emerging industries and future industries is expected to accelerate.