Domestic Demand Contributes to Q2 GDP Growth    

China's National Bureau of Statistics (NBS) recently announced a series of economic indicators for May. The consumer price index (CPI) fell 1.4% year over year. The price index for medical healthcare products increased by 0.9%, the price index of wine and tobacco increased 1.4%, the price indexes for the other six categories dropped at a different extent. CPI fell 0.9% cumulatively for the period of January to May, compared to 0.8% in the first four months.
    The producer price index (PPI) in May dropped 7.2% from one year earlier - greater than the 6.6% fall in April. The ex-factory price of crude oil dropped 50.6%, with kerosene falling 32.0%, diesel 11.2%, butadiene rubber 37.9%, polystyrene 18.8%, polyester filament 14.4%, aluminum 20.0%, zinc 37.4% and steel 28.1%. In contrast, gasoline and coal increased 4.7% and 5.9% respectively.  
    The purchase-in prices of raw materials, fuels and power plummeted 10.4% in May, year on year, with a 9.8% drop for chemical raw materials.
    The industrial value added of China's industrial enterprises with a designated size increased 8.9% year on year in May, compared with 7.3% in this April and 16% in May 2008, with the textile sector increasing 8.3% and the chemical raw materials and product manufacturing sectors up 11.1%. By main products, in May, coal output increased 9.6% year on year to 250 million tons, crude oil dropped 1.1%, and the output of pig iron, crude steel and steel preparations increased by 6.0%, 0.6% and 7.4% respectively. Cement output reached 150 million tons, up 13.5%. Automobile output reached 1.148 million units, up 29%, within which the output of sedans reached 608 thousand units, up 35%. In the period of January to May, the designated industrial enterprises achieved a cumulative growth of 6.3% in industrial value added, compared with the 5.5% growth in the period of January to April.
   Exports in May plunged by 26.4% year over year, and imports dropped 25.2%, following 22.6% and 23% drops respectively in April. In the first five months, the total value of exports and imports was US$763.49 billion, declining 24.7% compared to the same period year ago.
   NBS also disclosed the investment on fixed assets in urban regions amounted to RMB5 352 billion in the first five months, representing a 32.9% gain over one year earlier.
    Considering the strong growth in domestic investment and the continuing drop in foreign trade, some economists summed up that GDP growth was turning to rely more on increased domestic demand. The global recession's impact on domestic enterprises and workers cannot be wholly offset by the positive drive brought by surging domestic demand, however.
   To answer public comments on the contradiction between the drop of power consumption and the growth of industrial value added, NBS officials explained that was caused by three main factors - inventory destocking of high energy-carrying products, lower energy consumption per unit of GDP and the changed industrial structure.  

Zhong Weike
June 18th, 2009