Positive prospects for China's economy

Positive prospects for China's economy

9 July 2014, 14:51
Angeliqi N

Although China's economic growth has risen in the second quarter from the previous three months, further careful government support measures will still be needed. Business collaboration with Europe and tactful government measures contributed to prosperity of the world's second largest economy.

On Monday Angela Merkel and Mr. Li signed agreements that included the investment by Volkswagen of 2 billion euros, or $2.7 billion, in two new vehicle plants in the cities of Tianjin and Qingdao. China is the biggest market for Volkswagen, which sold 1.5 million vehicles in the country in the first five months of this year, the company said. Also in connection with the visit by Ms. Merkel, Lufthansa, the German airline, and Air China, China’s flag carrier, signed a memorandum of understanding to expand and strengthen their partnership. The two carriers, members of the Star Alliance, also said they were working to offer better flight connections, particularly on China-Europe routes, and expand collaboration in services. Under the deal, Air China and Lufthansa plan to set up a joint venture that will allow them to share revenue on certain routes by selling tickets for each other’s flights. As Lufthansa said, the partnership could be in effect by the start of the winter timetable in October. Such joint ventures allow airlines to sidestep foreign-ownership rules and work together on routes and pricing without running afoul of competition regulations. Also on Monday, an Airbus Group division concluded a contract to sell 123 helicopters to Chinese companies. The company has its headquarters in France but does some of its manufacturing in Germany.

In the first quarter of 2014 the authorities used so-called targeted measures: they have cut taxes, ordered regional governments to speed up spending and reduced the amount of cash that some banks have to hold as reserves. These activities helped to lift China's economic growth which hit an 18-month low of 7.4 percent in the first quarter of 2014.

Use of these events is meant to help areas of the economy with business needs, and is a departure from the past, when China would cut interest rates or reserve requirements for all banks and increase spending across the country. China's Premier Li Keqiang said that the authorities would further fine-tune policies, and he expressed confidence that the government’s growth target of around 7.5 percent for this year would be met, without any major stimulus program.

However, on the back of China’s rapid growth in recent years, some experts, including the International Monetary Fund, have urged the Chinese authorities to refrain from loosening policy and to focus on pursuing economic overhauls. Surveys of China’s manufacturing and services sectors have shown that a cooling property sector has risen as a large threat despite the stabilized economic growth in China.

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