Data good enough to dispel doubt over China's economy

Western media has once again raised doubts on China's ability to transform its economy and achieve sustainable growth. A closer look at the numbers, however, paint a much different picture.

Recent data point to positive changes in China's economy, including a shift in growth drivers and ongoing industrial upgrade. While challenges and risks do exist, there is fundamentally no basis to be overly pessimistic about the country's economic prospects.

First, China's gross domestic product rose 6.7 percent in the first three months of the year, in line with the government's annual target range of 6.5 percent to 7 percent.

A closer inspection of the data reveals faster growth in new economy sectors, enough to cushion any potential slowdown from traditional non-efficient industries. Furthermore, job creation continues to be strong.

Second, the acceleration in China's credit growth in the first quarter should not be so worrying as some Western media outlets maintain.

The Wall Street Journal recently argued that while more credit and debt-fueled spending helped China ease its growth slide, rising debt levels risk exacerbating ills that have dragged on the economy for years.

The truth is that faster credit growth at the start of the year is only temporary due to seasonal factors. Banks have a tendency of releasing massive amounts of credit at the beginning of the year.

Outstanding bank lending stood at 98.56 trillion yuan (15.18 trillion US dollars) at the end of March, up 14.7 percent year on year.

But this growth is within a reasonable range, considering the fact that pro-growth measures, recovering property markets and rising commodity prices created a demand for loans, said Ma Jun, chief economist at the People's Bank of China, the country's central bank.

The Wall Street Journal also failed to take notice of one simple fact: an increasing amount of credit is moving from sectors that generate low returns to sectors that are more efficient.

Statistics by the central bank show that medium- and long-term credit issued to redundant sectors dropped 0.2 percent year on year, with the construction materials and steel sectors seeing declines of 10.3 percent and 7.5 percent respectively. Bank loans to high-tech and equipment manufacturing firms rose 8.9 percent.

Taking a look at a geographical breakdown, credit growth for the less developed central and western provinces outpaced that of the more developed east. Credit loans for small and mini-sized businesses outpaced those for large- and medium-sized enterprises.

Thirdly, the services sector grew 7.6 percent in the first quarter, 1.8 percentage points higher than growth found in traditional manufacturing. The latter sector is currently shifting production to encompass more emerging and high-tech industries as well as equipment manufacturing, growing 10 percent, 9.2 percent and 7.5 percent respectively, growth rates much higher than old economy traditional manufacturing.

Fourthly, domestic consumption was the driver behind more than 60 percent of economic growth in the first quarter, meaning China is less dependent on investment and exports for growth.

If the world is concerned about China's future, it shouldn't be. China has a clear long-term policy direction, ample policy room and a strong will to ensure sustainable economic growth for years to come. It liberalized interest rates last year and is pushing for further governance and financial market reforms. The more efficient value-added tax is set to replace the business tax starting from May 1.

While it's natural to be nervous China's current economic transition, observers should not ignore the positives that have emerged so far. Better yet, no one should doubt Beijing's resolve to make much needed change a reality.