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Shanghai’s economic development in the first half of 2017

Aug 2, 2017

The Shanghai Municipal Government’s Information Office held a press conference on July 18 to brief the media on Shanghai’s economic development in the first half of 2017. The following are the highlights:

Tang Huihao, deputy director, Shanghai Statistics Bureau

The Paper: Just now you mentioned the moderate rise in CPI in the first half of the year. Could you please give us an analysis on the CPI trend for the second half?

Tang: At the beginning of the year, the CPI shot to a high level due to New Year’s Day and Chinese New Year holidays in January. Then the rise in food and house prices declined gradually. In the first half, the CPI rose by 1.9 percent, 1.2 percentage points lower than the same period last year. There are 4 characteristics of the CPI:

First, the rise in service price was faster than consumer goods price. In the two broad categories, the year-on-year rise in service and consumer goods prices fell from the same period last year, but the price of services rose still faster than consumer goods. In the first half of the year, price of services rose by 2.7 percent, which was 1.7 percentage points lower than the same period last year; consumer prices edged up 1.3 percent, 0.8 percentage points lower, thus the rise in service prices was 1.4 percentage points higher than consumer prices.

Second: the main reason for the steady fall is the decline of food and house indexes. At the beginning of the year the rare warm weather in winter was beneficial for the production and transportation of vegetables, which led to a significant drop in food prices. The real estate market regulation effectively controlled the rapid rise in house prices, and house rent prices dropped as well. The fall in food and house prices contributed to a 1.3-percentage point drop in the CPI.

Third, medical and house prices were still the fastest among eight categories. Influenced by the adjustment in medical service prices in the second half of last year and the cancellation of price cap by the government on most medicines, drug prices, especially those of economical medicines, rose several times. In addition, Shanghai raised the price of some medical service on February 15. Medicine and health care saw an 8.3 percent jump in prices in the second half, which was the highest among the eight categories. It was followed by house prices, which rose by 3 percent. The above two categories raised the CPI by 1.4 percentage points, or 74 percent of the index.

Fourth, the gap in the CPI between Shanghai and the nation’s average is narrowing gradually. By June, the rise in percentage points of Shanghai’s CPI was higher than the national average for three consecutive years. However, the gap is narrowing this year from 1.1 percentage points in January to 0.5 percentage points in the first half. Three factors contributed to this: housing; food, tobacco & alcohol; and medical & healthcare. The rise of the above three in Shanghai was, respectively, 0.6 percentage points, 1.8 percentage points and 2.9 percentage points higher than the national level.

Just now you mentioned the trend for CPI in the second half, even though the percentage-point rise is dropping. However, from 262 basic CPI categories we found that it will very likely rise. Especially, service price rise will be significant, including labor price. The rise in service prices is set to pull up the cost of other articles and services. In general, Shanghai’s CPI will keep a moderate rising trend, provided there is no major upheaval. And it is expected that the percentage-point price rise for 2017 will be lower than last year.

Eastday.com: In the first half the GDP in Shanghai rose by 6.9 percent, which was 0.1 percentage points higher than the first quarter. Could you comment on the economic situation? From the analysis of statistics, how do you think the economic situation will be in the second half? In addition, yesterday the National Bureau of Statistics published first-half GDP figures, which reveal that the GDP rose by 1.7 percent in the second quarter over the first quarter. What is the figure for Shanghai’s GDP over the same period?

Tang Huihao: In the first half of the year, the economic situation in Shanghai was progressing toward a better perspective. In other words, the stable pattern has been consolidated and the good trend is emerging further.

First, the stable pattern has been consolidated. Main economic indicators are stable with the economy in a reasonable range. First, the economy has seen stable expansion. The GDP rose by 6.9 percent in the first half of the year, 0.1 percentage points higher than the first quarter, and 0.2 percentage points higher than the same period last year, we should say the rise is rather stable. Second, the job market is improving. Just as I have said, there were 342,300 new jobs in the first half of the year, which is 68 percent of the annual target. By the end of June, the number of registered unemployed people was 218,400, or 2,100 less than the same period last year. I should say it was pretty good. Third, the price is stable in general. In the first half the CPI rose by 1.9 percent, which was 0.2 percentage points lower than the first quarter and moderate. In addition, some important indicators are better than expected. For example, the added value for industries above a designated scale rose by 7.8 percent, which was a 12.5 percentage points higher than the same period last year and the highest rise since 2012. The import and export volume of cargo was 18.7 percent higher than the same period last year, which was 19.1 percentage points higher than the same period last year.

Meanwhile, the good trend is emerging further, mainly in the following three aspects: first, the development of new market and new technology has effectively pushed forward the development of new industry, new commercial activities and new models. By the end of May, there were more than 500 innovative spaces across the city, including 100 innovative fields, 159 incubators and 14 accelerators as well as 250 innovative organizations, which rose more rapidly than last year. The retail volume of online shops in Shanghai rose by 17.9 percent, which was 9.8 percentage points higher than the total retail sales of consumer goods. The output of the strategic new industry, namely new energy vehicle and new generation information technology, was 17.5 percent and 12.6 percent, respectively, higher than last year.

Second, the quality and benefits of economic development have improved further. The fiscal income rise is better than expected. Last year fiscal income was rather high, and there were several reduction factors due to the transfer from business tax to value-added tax. In the first half, the general public budget revenues rose by 8.3 percent, which was better than expected. In the first five months, the industrial profit rose by 14.1 percent, which was 14.4 percentage points higher than the same period last year and rose for the 10th consecutive month. Residents’ income saw a steady growth, with average disposable income up by 8.6 percent, among which disposable income for urban and rural residents rose by 8.6 percent and 8.8 percent, respectively.

Third, the consistency of economic development has significantly improved. The consistency between the service sector and secondary industry has strengthened. The added value of the secondary industry in both 2015 and 2016 was 1.2 percent; in the first half of the year it increased by 6.6 percent. As for the added value of the service sector, it fell from 10.6 percent in 2015 and 9.5 percent in 2016 to 7.6 percent in the first half of the year due to the sluggish performance of the financial and real estate industry. We can see that the increase gap between the secondary and service sector is narrowing. The development of the real economy and the virtual economy has been more consistent. The contribution of finance and real estate to economic growth has been lowered from 3.8 percentage points in 2015 to around 1 percentage point in the first half of this year. However, the contribution of industry has risen by 0.2 percentage points to 1.9 percentage points during the same period. In addition, the contribution of domestic and foreign demand to the economy has been enhanced. The fixed asset investment and retail sales of consumer goods witnessed around 6 percent and 8 percent increase in the past two years. Imports and exports rose by 12 percent in the first half of the year, it was minus 5.3 percent in 2015, which changed the pattern of economic growth relying too much on domestic demand.

In general, Shanghai’s economy was stable, and fared better than expected in the first half of the year, laying a solid foundation for fulfilling our annual target.

As to the economic trend for the second half of the year, the supporting foundation and conditions for continuous and stable growth have not changed amid a background of deepening supply-side structural reforms and accelerating innovation-driven development strategy. So market expectations and confidence on economic development have been raised. I have some statistics: consumer confidence in June reached 118.3, which is at a high level compared to statistics in recent years. With the construction of the pilot free trade zone and the scientific innovation center, the vitality of Shanghai is set to be unleashed, the positive factors will boost the economic performance in the second half of the year, and the promising economic situation will be further strengthened.

Of course, we should also see that there is pressure on the development of the economy and there’s still a long way to go for innovation and transformation. In the second half of the year we will further consolidate the confidence to push forward supply-side structural reforms and the stable and healthy development of the economy in order to reach our annual target.

Just now you mentioned the national GDP rose by 1.7 percent in the second quarter compared with the first quarter, how about the figure in Shanghai? In fact the calculation is rather complicated as it is related to the factors of price and the number of working days. So the calculation needs to accumulate historical statistics in the long term and we can only have an accurate figure after adjusting it with the price and seasonal factors.

The National Bureau of Statistics started publishing the figure in the first quarter of 2011 after years of research and calculations. Currently the NBS is working with local statistics departments to study the calculation method of quarterly GDP comparative growth. We will publish the figure when the method is mature and accurate.

STV: It was mentioned that Shanghai’s economy has been less reliant on finance and real estate. Could you explain how the housing market has been in Shanghai in the first half of this year? Under the special circumstances where real estate policies have been tightened, is there any change in the trade volume and house prices?

Tang: For the first half of this year, the central government has been stressing that houses are for living (and not for investment). In applying policies according to different situations in different cities, Shanghai sticks to its adjustment policies and the real estate market shows characteristics in three perspectives:

First the growth rate for real estate developers’ investment continues to decline. In the first half, the investment rose 4.1 percent, down 4.6 percentage points compared to the same time last year. Real estate investment accounted for 58.7 percent of the social fixed asset investment, 1.3 percentage points lower than last year.

Second, the trading volume in real estate has declined. Sales of newly-built commercial residential buildings have decreased 40.6 percent in area compared to the same time last year; meanwhile the decline in area for sales of commercial residential buildings was 41 percent. According to statistics from the Shanghai Municipal Commission of Housing and Urban-rural Development, the stock house sales have slumped 51.6 percent in area compared to last year while stock residential house area sold has declined by 56.8 percent. This number is the lowest in the past five years.

Third the area for commercial residential houses under construction and completed has increased. In the first half of this year, commercial residential housing area under construction increased 302 percent in area compared to the same period last year. The house construction scale remains at a high level. This year the newly developed area has grown 10.3 percent. In the first half of this year, the area completed had a year-on-year growth of 57.9 percent, among which the growth for residential housing was 38.8 percent.

China National Radio: In the first half of this year, Shanghai saw rapid industrial growth. I would like to know how the manufacturing upgrade has been in Shanghai. The second question is: the Shanghai Municipal Government launched 50 policies to support the real economy in the first half of this year. Can we tell on a preliminary basis how well these policies have been implemented from statistics?

Tang: This year the structural reforms on the supply side have moderately enlarged demand. Shanghai has been carrying out policies to boost economic growth and stability and promote the transformation. Of course, the 50 policies you mentioned are included. Industry in the city has continued its upward trend since the end of last year. Enterprises are recovering. In the first half of this year, the industrial economy showed the following features:

To start with, the industrial trend has been obviously better than expected. In the first half of the year, industry with a certain scale showed an improving performance with a good recovery growth. The total industry output increased 8.2 percent compared to the same time last year. The growth rate was higher than the last quarter by 1.1 percentage points. The industrial added value grew 7.8 percent with a 1.4 percentage point growth rate. The gains have been the fastest since 2012.

Second, the growth rates for the six leading industries come first in the overall industry. In the first half of this year, the six industries’ growth percentage accounted for 11.2 percent more in the overall industry output, 3 percentage points higher than the overall level. Auto manufacturing saw strong growth, driven by new models and new production capacity. The industrial value climbed 22 percent, the growth rate 3.2 percentage points higher than the first quarter and the top among other industries in Shanghai. With export orders recovering, electronic information product manufacturing grew 14.5 percent in production value, the second in growth rate with a 1.2 percentage point rise. The rapid growth in the two industries is the main push for the recovery in the city’s economy.

Third, industrial exports witnessed rather rapid growth. In the first half of this year, exports of electronic information products were 11.5 percent more than the same time last year. It has been growing for eight consecutive months since last November, with exports obviously turning for the better.

Fourth, the industry and the economy have further improved in quality. The industry has a better capacity to make profits. From January to May, enterprises gained 10.5 percent more income than the same period last year from their main businesses with total profit growing 14.1 percent. The profit from main businesses gained 18.6 percent with costs kept low. For every 100 yuan gained in income in this aspect, the cost took up 79.5 yuan, 0.4 yuan lower than the figure in 2016. Three expenditures in 100 yuan were down 5.3 percent compared to last year. The leverage has been low for industrial enterprises. From January to May, the enterprises’ debt-to-asset ratio was 47.9 percent, 1.1 percentage points lower than last year.

Fifth, part of the emerging industries stood out. In the first half of the year, the hi-tech industry had an industrial output 13.5 percent higher than the same period last year. The growth rate was 5.3 percentage points higher than the overall level in the city. Manufacturing in the strategic emerging industry made up 6.8 percent more of the output value, accounting for 29.7 percent of the total industrial output value in the city while making 2.8 percent more than last year. The industrial output value growth rates for new-energy vehicle and the new generation of IT were 17.5 percent and 12.6 percent, respectively. In the first half of 2017, the production of high performance chemical fiber grew 1.1 times, SUVs 1.1 times, 82.4 percent more for industrial robots, 52.6 percent more for 3D printers, 29.7 percent more for smart TVs, 29 percent more for photoelectron parts and 11.1 percent more for integrated circuit pads.

Generally speaking, in the second half Shanghai’s industrial enterprises will see steady growth. Automobile and electronics will keep raising the overall upward trend. But due to the rather high industrial production base at the end of last year, it is estimated that in the latter half of the year, the growth rate may narrow down.

We have performed research on real economy development. Though Shanghai has been making progress in this respect, it is facing some roadblocks. For example, there is still pressure regarding rising costs, including for human labor, transportation and raw materials. The financing is still difficult and expensive. The transformation for some real economy enterprises is facing problems with the policies yet to be settled.

Jiefang Daily: It is said that Shanghai saw an obvious decline in foreign investment in the first half of this year. How long is this supposed to last? When will there be a rebound, if any, in terms of Shanghai’s existing economic structure? We would like to know if it will take place in the manufacturing or the service industry. Also what can we do to trigger the recovery?

Tang: In the first half of this year, Shanghai received contractual FDI of US$18.21 billion, a 47.1 percent decline compared to last year. Affected by the high base amount last year, the growth rate has been the lowest since 2010. The actual FDI is US$8.1 billion, a 7.1 percent decline from last year.

You mentioned that there were two declines in using foreign capital in Shanghai. This came from both external and internal causes. From the external perspective, the competition to attract foreign investment has been more intense. The US’ trade protectionism and major tax cuts have become increasingly appealing for global investment. The policies in developed countries to promote manufacturing are starting to show effects and common manufacturing businesses are competing with countries and regions with still lower cost. Shanghai’s mode and industries in attracting foreign investment have been changing and have affected the scale of investment to an extent. As industrial adjustment continues and amid free trade zone reforms in Shanghai, the fields and methods for the local government to introduce foreign investment change. The proportion for headquarters’ economic R&D, the Internet Plus, finance and high-end manufacturing has been increasing, while that in real estate, labor-intensive industries and common manufacturing has been declining rapidly. In short, these have caused a major impact on the constant growth of the investment scale.

We can see that as expectations for a rise in interest rates come true in the US, the RMB exchange rate gradually becomes steady, gains from the free trade zone reforms show. The investment environment improves and the policies to use foreign capital are determined. Shanghai’s absorption of FDI is set to climb back.

Securities Times: In the first half of this year, the medical and health care prices have gone up 8.3 percent among consumer goods prices. They have risen more than other data. Can you interpret for us the data for specific classification under the health care industry? Also, how is the growth compared to the latter half of last year? Will it see rapid growth in the second half of this year?

Tang: I have a set of statistics here. In the first half of 2017, the price index for medical and health care was 108.3, pulling up 0.6 percent of the overall index. I will provide you with specific figures for the branches later.

Wenhui Daily: There has been plenty of discussion about the real economy. I noticed that in the first half of this year the third industry took up a lower proportion of the GDP. How do you see the decline? Can it be used to make a judgment on the GDP proportion trend for the second and the third industries?

Tang: The main goal of and direction for economic development is to raise its quality and profit. The proportion change for the third industry is a normal fluctuation under stable economic conditions. The point is the second industry enjoyed major growth in the first half of this year.

I will brief you about the features of third industry development in Shanghai in the first half of this year. It has been growing steadily with the added value increasing 7 percent more than the same period last year. The third industry still plays a significant role in the municipal economy. The added value for the third industry accounted for 69.9 percent of the city’s total output value. Also the third industry’s investment in fixed assets amounted to 80 percent and it has absorbed more than 90 percent of FDI.

The internal structure is changing, too, for the third industry. The added value from the financial industry took up a proportion of 27.2 percent in the third industry and contributed 28.6 percent to the municipal output growth, which means Shanghai has performed well in building an international finance center. The percentage for the retail and wholesale industry in the third industry was 21.4 percent while the figure for information transfer, software and IT was 9 percent and for transportation, warehouse and mail 6.2 percent. The added value for real estate has declined. The municipal economy has become less dependent on the real estate industry.