China Economic Performance in the First Half of 2016

China’s economic growth continued to slow down further. In the first half of 2016, real GDP growth1 moderated to 6.7% YoY from 6.9% in 2015 and 7% a year earlier respectively. Of the industrial enterprises above designated size, value added decreased marginally to 6.0% from 6.1% in 2015 and 6.3% a year ago (see Fig. 1.1). China’s continued economic slowdown reflects that, given subdued external demand, increasing labor cost, and end of property boom, the investment- driven and export-oriented growth model, which has served China well in the past, is now in a difficult position as returns on investment (ROI) has fallen.

As the structural transformation becomes more evident, China’s growth will continue to slow down in the medium term. Due to overcapacity in manufacturing, overstock in real estate, and high corporate debt load, the total investment growth decelerated, typically, the private investment growth fell sharply. China’s macroeconomic policy has to make a difficult tradeoff between near-term demand management measures and long-term supply-side structural transformation, while in the meantime addressing financial stability risks.

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