Downward pressure burdens Chinese economy

Although Chinese leaders have stressed the flexibility of the GDP growth target, an inspection group dispatched by the State Council found that attaining "reasonable" growth remains a struggle.

The group inspected government work in Hebei, Liaoning, Heilongjiang and Beijing from June 25 to July 5. It noted that slowed economic growth, particularly in Hebei and Heilongjiang, needs to be addressed.

Hebei Province's GDP growth fell by 4 percentage points to 4.2 percent in the first quarter, marking the worst performance in the past 20 years.

Hebei, which borders Beijing, is making painstaking efforts to cut cement, steel and glass facilities as the province is partly blamed for the smog in the Chinese capital.

These polluting facilities, however, are the major powerhouse driving Hebei's economy.

The economy in northeast China's Heilongjiang Province also suffered a heavy blow in the first three months with GDP expansion decelerating to 4.1 percent from 9 percent in the first quarter of 2013. Its growth was the lowest of China's provincial-level regions.

Oil exploitation, coal mining and lumber, the three pillars of Heilongjiang's economy, shrank quickly due to low energy prices and strict felling bans.

The inspection group found that although the economy in Liaoning Province was generally stable, it suffered from weak exports and low investment enthusiasm, especially in the property market.

The group said in a report that secondary industry plays a decisive role in the economy in these provinces. An unbalanced economic structure leaves them vulnerable to macroeconomic fluctuation.

Like Hebei, Heilongjiang and Liaoning, China's other provinces are confronted with downward pressure as the country adapts to an economic slowdown and reshuffles the economic structure.

For the first time, China set a flexible GDP target of around 7.5 percent for this year and came up with the term "reasonable range," giving GDP growth more room to fall.

Although there is no specific lower limit to the range, an abruptly stalled economy could lead to rising unemployment, less government spending on improving livelihood, and even social unrest.

Yang Chuantang, head of the inspection group, said he thought the growth rate in Heilongjiang and Hebei fell out of the reasonable range in the first quarter.

"If pro-growth measures do not kick in immediately, it will be very hard for them to secure the yearly target," he added.

STATE COUNCIL INSPECTION

To make sure that the central government polices are taking effect, the State Council sent a total of eight inspection groups to 27 ministerial departments and 16 provinces and municipalities.

The inspection was the first of its kind since the incumbent central government took office last year. Whether local governments did well in stabilizing growth is high on the inspection list.

Before the inspection, Premier Li Keqiang convened eight governors and mayors in Beijing last month to discuss the current economic situation.

"The downward pressure is still considerable. We should not ignore the challenges and risks," said Li at the meeting.

"I took his remarks as criticism," said Heilongjiang Governor Lu Hao.p

ACTIONS UNDER WAY

Stimulus seems to have become a taboo in China in the past few months. Government officials were very careful about the word and academic circles liked to argue whether a new policy was a stimulus measure or not.

The reason lies partly in the fact that a four-trillion-yuan (645.2 billion U.S. dollars) stimulus package issued after the 2008 financial crisis fueled overcapacity despite buoying growth.

But this time, the actions are aimed at more than short-term growth.

To replace the high-polluting old growth model, Hebei rolled out a set of preferential policies, including more land supply, streamlined approval procedures and tax cuts, to nurture strategic emerging industries such as new energy business.

Heilongjiang released similar measures to support the development of the service sector in order to reduce reliance on the energy industry.

"Local government should step up pro-growth efforts and strive to accomplish this year's target and lay a solid foundation for the years to come," said Yang.