First, the increase of ROI would accelerate private investment growth and increase the share of private investment in the FAI. As shown by Fig. 3.5, affected by the increase of ROI, the private investment growth rates after 2015 in Scenario 1 would be 5.0 percentage points higher than that in the baseline simulation (hereafter Baseline) per quarter on average. In the meantime, they would increase quarter on quarter, quite different from the situation in Baseline that they decline steadily. Furthermore, shares of private investment in total FAI would increase significantly,

Fig. 3.4 The ROI simulation and scenario simulation. Note (1) ROI = (gross profit - income tax)/(total assets - total liabilities) = (gross profit x 0.75)/(total assets - total liabilities). (2) Data are seasonally adjusted. Source CQMM team calculations on CEIC data

Fig. 3.5 Changes in private investment growth rates (Scenario 1). Note (1) Baseline denotes results of the baseline simulation. To make simulation results closer to real economy, equations concerning major endogenous variables have been adjusted by additional factor approach. (2) Scenario 1 denotes the simulation results of Scenario 1. (3) Gap = Scenario 1-Baseline. Source CQMM team calculations on CEIC data

and the increasing range would expand vibrantly. In the second quarter of 2016, the share in Scenario 1 would be 2.10 percentage points higher than that in Baseline (see Fig. 3.6).

Secondly, the pickup in growth rates of private investment would accelerate the GDP growth. As shown by Fig. 3.7, the GDP growth rates in Scenario 1 would be

0.94 percentage points higher than those in baseline simulation per quarter on

Fig. 3.6 Changes in shares of private investment in the FAI (Scenario 1). Note (1) Baseline denotes results of the baseline simulation. To make simulation results closer to real economy, equations concerning major endogenous variables have been adjusted by additional factor approach. (2) Scenario 1 denotes the simulation results of Scenario 1. (3) Gap = Scenario 1- Baseline. Source CQMM team calculations on CEIC data

Fig. 3.7 Changes in GPD growth rates (Scenario 1). Note (1) Baseline denotes results of the baseline simulation. To make simulation results closer to real economy, equations concerning major endogenous variables have been adjusted by additional factor approach. (2) Scenario 1 denotes the simulation results of Scenario 1. (3) Gap = Scenario 1-Baseline. Source CQMM team calculations on CEIC data

average. In 2015 and the first half of 2016, the GDP growth rates would maintain approximately between 7.7 and 7.8%, 0.8-1.2% points higher than the present growth rates, almost same as those in 2012 and 2013.

Fig. 3.8 Changes in aggregate demand structure (Scenario 1). Source CQMM team calculations on CEIC data

Thirdly, as to the aggregate demand structure, affected by the increase of the FAI growth rate, the share of gross capital formation in GDP would rise, and the share of household consumption and net exports in GDP would decline slightly. As shown by Fig. 3.8, in the second quarter of 2016, the share of gross capital formation in Scenario 1 would be 0.59 percentage points higher than that in Baseline, owing to the growth rate of household consumption lower than that of investment. And the share of household consumption would fall by 0.20 percentage points, due to the accelerating GDP growth. The growth rate of household consumption would also be higher than that in Baseline. In addition, the share of net exports would go down, owing to the increase of imports growth rate when the domestic demand goes up.