Measure the health of China's economy amid transformation

(People's Daily Online) 10:31, June 03, 2015

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As China's economic structure is in continuous optimization, experts hold that tranditional microeconomic indicators including rail freight volume and industrial electricity consumption are no longer a good measurement of health of the economy.

China's railways transported 870 million tonnes of freight in the first quarter of the year, down 9 percent year on year. The amount of industrial electricity consumption declined by 1.1 percent in April compared with that of last year.

Rail freight volume and industrial electricity consumption have always been regarded as China's economic trend-setters. As the two traditional macroeconomic indicators continue to drop, does this mean that China's economy is losing its pace?

In fact, China's economy has made hard-won gains this year. The overall economic and financial risk is under control, as is social stability. In the first quarter, China's economic growth reached 7 percent, one of the highest rates in the world and in line with expectations, and the corresponding economic increment is very impressive.

"If we can achieve 7 percent economic growth this year, it will bring the greatest economic increment in these five years, higher even than that brought by the 10.4 percent growth rate in 2010," says Pan Jiancheng, deputy director of the Economic Monitoring and Analysis Center at China National Bureau of Statistics.

The optimization of the industrial structure and the secondary industry internal structure has led to a weaker connection between the traditional macroeconomic indicators and the economic situation.

In 2013, China's service sector share of GDP and contribution to economic growth rate exceeded secondary industry, marking a milestone change in China's economic structure. According to Fan Jianping, chief economist at State Information Center, in a situation where the service sector already makes up the largest proportion, it is clearly no longer appropriate to measure China's economy against indicators typical of the big industrial era.

In recent years, China's high-speed railway mileage is increasing and the volume of air cargo transportation is also on the rise. In the first quarter of this year, rail freight made up only 9.2 percent of the total freight volume in the integrated transport system, meaning that it can no longer objectively and comprehensively reflect the overall demand and development trend in China's logistics market.

Manufacturing transformation and upgrading is another factor that reduced the representative role of traditional microeconomic indicators. High-tech industries with lower energy consumption are making up a larger share of secondary industry. In addition, China has already made technological transformations in six high energy-consuming industries. In the first quarter, China's unit GDP energy consumption fell by 5.6 percent. This is part of the reason why industrial electricity consumption is no longer a complete and accurate measure of economic activity.

Tranditional microeconomic indicators including rail freight volume and industrial electricity consumption are no longer the "absolute authorities" to measure the economic situation. The deeper reason is that China's economic structure is in continuous optimization. It is an important feature of current economic development, as well as a highlight of current economic operation.

Transformation of economy growth model and structural adjustment now play a more important role. However, indicators reflecting economic operation quality and efficiency and the state of innovation and actual performance are also required.

This article was edited and translated from 风向标还灵不灵？, source: People's Daily, author: Lu Yanan, Zuo Ya.

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