Positive signs seen in some areas, but challenges remain
China's economic indicators in the first quarter of 2016 were not particularly promising, and downward pressure persists despite signs of improvement in some areas, economists said on Tuesday.
The comments followed remarks by Premier Li Keqiang on Monday that the number of positive factors in the Chinese economy is rising, but many challenges still exist and risks in some areas cannot be ignored.
"There is no doubt that economic indicators in the first quarter were not so optimistic, and might have even been worse than last year," Xu Hongcai, director of the Economic Research Department under the China Center for International Economic Exchanges, told the Global Times on Tuesday.
There are better signs in some areas, but the foundation of such improvements is "fragile," Xu said, noting that these signs have been supported mainly by investment and will not last long.
Fixed-assets investment in the first two months of the year grew by 10.2 percent from the same period last year to 3.8 trillion yuan ($586 billion), according to data released by the National Bureau of Statistics (NBS) on March 12.
The rise was supported by a rebound in the property market, which accounted for 23.8 percent of the total investment, and a slight increase in manufacturing investment, which picked up by 7.5 percent year-on-year, Wang Baobin, a statistician with the NBS, said in an article posted on the agency's website on March 12.
In addition, the producer price index (PPI), a measure of prices at the factory gate, dropped 4.3 percent year-on-year in March, narrowing from a 4.9 percent decline in February and 5.3 percent drop in January, according to the NBS.
Short-term difficulties
However, economists said these signs of improvement are likely to be only temporary, and that the sluggish demand situation both at home and abroad has not changed.
Although the PPI decline narrowed in March it is still falling, offering a warning sign that the government should come up with more measures to support companies, Zhuang Jian, an economist at the Asian Development Bank, told the Global Times Tuesday.
"Basically, aside from investment, all other major growth-driving forces are down," said Tian Yun, director of the research center at the China Society of Macroeconomics under the National Development and Reform Commission.
"And on top of that, exports in the period have been declining significantly," Tian told the Global Times on Monday. "So the economic situation in the first quarter might be even worse than expected."
Tian said market expectations for GDP growth in the first quarter were between 6.7 percent and 6.8 percent, but the actual growth rate might have been as low as 6.5 percent.
A clearer picture should emerge later this week, with the release of trade data on Wednesday and first-quarter economic data on Friday.
Economists said the outlook for growth in the world's second-largest economy remained dim as domestic and global demand will likely remain sluggish and robust reform plans by the central government might have side effects.
"Implementation of the restructuring plans will remain very difficult," said Xu, noting that while progress in areas such as supply-side reforms will be necessary in the long run, it might drag on the economy further in the short term.
In addition, supply-side reforms might create unemployment issues, and it is crucial that the government handles these issues carefully, Tian noted.
Li said at a meeting of provincial and municipal officials on Monday that the government will push forward restructuring plans, especially supply-side reforms to help cut excess capacity and encourage industrial transformation and upgrading, and will help workers during job transitions, according to a statement posted on the website of the central government on Monday.
The premier also said China should maintain "reasonable and sufficient" liquidity in the market, and push for debt-to-equity swaps for companies to cut leverage ratios.
Economists said more monetary easing measures - especially cuts to the reserve requirement ratio, the amount of money banks are required to hold as reserves - are expected this year.
In its latest World Economic Outlook released late Tuesday, the IMF upgraded its growth forecast for China this year by 0.2 percentage points to 6.5 percent, citing the country's growing services sector, according to the Wall Street Journal.
