China : Supply-side contributions to growth, Monthly inflation, year to year growth
The People's Republic of China (PRC) is deepening reforms; transforming its economic structure; and rebalancing growth toward a consumption-driven, service-oriented, and environmentally sustainable ec...
Growth by economic sector varied from 8.1% in industry and services
to 4.5% in agriculture. Growth in the industry sector—by far the largest
component of GDP—declined by 2.2 percentage points year on year,
contributing the most to GDP deceleration (Figure 3.9.3). Growth in
services suffered less than industry, and growth in several high-end
services including information, design, and creative industry outperformed
traditional services, suggesting upward sophistication in the sector.
Improved weather and government support to agro-services contributed to
making agriculture the only sector in which growth accelerated .Measured by the consumer price index (CPI), inflation gradually
slowed in 2012 from 4.5% year on year in January to 2.5% in December
(Figure 3.9.4). For the year as a whole, the CPI declined to 2.6% from
5.4% in 2011. Improved supplies of food, mainly pork, and better
weather contained the rise in food prices, the largest category in the
CPI basket. The stabilization of housing prices also contributed to the
Fiscal policy supported growth through consumption subsidies
and more favorable fiscal treatment of the service sector and small and
medium-sized enterprises. In 2012 the consolidated fiscal deficit was
modest at 1.6% of GDP, and bank borrowing to cover it raised total
domestic public debt, including local government debt, to 54% of GDP.
Fiscal expenditure grew by 15.1% and revenue by 12.8%. A gradual
shift in focus toward social expenditure was reflected in higher support
to education, up by 28.3%. On the revenue side, corporate income
tax collection increased by 17.2% in line with improved enterprise
profitability, while individual income tax revenue declined by about 4%
following the late 2011 raise in the income threshold at which individuals
With taxation at the forefront of the reform agenda, the government
announced plans to expand property taxes piloted in Shanghai and
Chongqing to other cities and gradually establish a nationwide property
tax system to keep real estate from overheating and provide a steady
income to local governments. Similarly, the trial replacement of the
business tax with a value-added tax was extended to new provinces
and municipalities. The program covers telecommunications, rail transportation, construction, and business services.
Monetary stance was accommodative in 2012. Lower inflation and
declining growth prompted the central bank to cut both the 1-year
benchmark interest rate and the reserve requirement ratio twice in 2012
(Figure 3.9.5). Nevertheless, money supply (M2) grew by 13.8%, in line
with the government’s target of 14.0%. Total social financing, a measure
of liquidity outside M2, rose by 22.8% to CNY15.8 trillion at year-end, which is almost double the CNY8.2 trillion in new bank lending.
The rise highlights the rapid development of such untraditional sources of liquidity as trust loans, bond issuances, entrusted loans, and bank acceptance bills, which do not fall easily under central bank control.