oor probably won’t have much o an impact onlending activity. Still, this action will boost com-petition between banks. It also can be seen as asignal by the authorities that they intend to movein the direction o nancial market liberalization.Te question is how soon and how ar they willgo. One thing we know is that the governmentis determined to make the currency internation-ally convertible. Tis has been discussed quitepublicly. Yet this cannot happen absent interestrate liberalization.
Tere has been urther news lately that theChinese economy is growing more slowly thanhad been expected. Te purchasing manager’sindices (PMIs) or manuacturing worsened inJuly, suggesting that activity in the sector is declin-ing at an accelerating pace. China’s misortunepulled down neighboring countries, includingaiwan, South Korea, and Australia, all o whichsaw worsened PMIs in July.Te PMIs ollowed reports rom China’sgovernment about GDP growth or the secondquarter. Te headline suggests that growth sloweddown. But the reality is a bit dierent. Chinareports growth based on the percentage changerom a year earlier. By this measure, growth didindeed slow rom 7.7 percent in the rst quarterto 7.5 percent in the second quarter. However, amore useul measure is to look at the change romquarter to quarter at an annual rate. By this mea-sure, growth accelerated rom 6.6 percent in therst quarter to 7.0 percent in the second quarter.Tis is the same measure that the US governmentuses to report US GDP growth. Te Chinese don’tdo this, but the quarterly change can nonethelessbe calculated by economists. Te data suggestthat China continues to grow at a relatively slow pace, but growth did accelerate a bit in the secondquarter. Exports perormed poorly, and domesticdemand was relatively weak. Most analysts expectthat growth will remain subdued or the remain-der o the year.Tankully, there was some encouraging datarom the Chinese government recently. Retailsales increased 1.26 percent rom May to June.Tis was up rom 1.15 percent in the previousmonth. Industrial production was up 0.68 percentrom May to June, as opposed to 0.61 percent inthe previous month. Finally, xed asset investmentwas up 1.51 percent rom May to June, up rom1.43 percent in the previous month.Premier Li Keqiang responded to the newsabout modest GDP growth by saying that thegovernment will seek to avoid “wide uctuations”in economic activity. He also said that the govern-ment should create a “scientic macroeconomicpolicy ramework” that would provide the marketwith “stable predictability.”
While somewhat vague, this statement can be interpreted to meanthat, while the government is comortable withslower growth, it wants to stabilize growth andavoid volatility.Interestingly, although economic growth inChina has decelerated, employment growth hasaccelerated. It was reported that in the rst sixmonths o 2013, China created 7.25 million new jobs, more than in the corresponding period in2012. One o the biggest ears o the Chinese lead-ership is a rise in unemployment. Tey probably will be willing to absorb a slowdown in growth aslong as entrants to the labor orce can nd work.A Chinese government ofcial said that, goingorward, more jobs will need to be created in
Interestingly, although economic growth in China hasdecelerated, employment growth has accelerated.
Asia Pacifc Economic Outlook—September 2013