China National Radio:

I have two questions. It was reported yesterday that the railroad freight volume in the first quarter declined year on year and power consumption grew very slowly in the first two months of this year. Why has industrial added value growth rate increased fast in the first quarter? How do you explain the correlation between those figures? Looking at the current statistics, we see that the global economic recovery is weak and we should boost domestic demand in the near future. Currently, the real estate sales are also declining. My question is: what else measures can we call upon in order to boost domestic demand?

Sheng Laiyun:

Thank you for your question. With regard to the correlation between the industrial added value, and the power consumption and the railroad freight volume, I'll make a few points as follows: First, based on former experiences, the growing trend of industrial added value should accompany a growing power consumption and railroad freight volume. As to the recent figures, we see that the growth rate of industrial added value in the first quarter fell by 1.2 percentage points compared with that of the fourth quarter in 2014, and those of railroad freight volume and industrial power consumption also slowed down. So the directions are the same. It demonstrates that the two parts are closely interrelated.

Secondly, the correlation between the fluctuation in industrial added value, power consumption and railroad freight volume is not linear. The elasticity of power consumption varies under different economic situations. During an upturn in economic conditions, when growth is accelerating, the heavy industries, especially high-energy-consuming ones, will grow quicker and the elasticity of power consumption will also improve. Conversely, when the economy is on a downslide, the slump in heavy industries is even faster, especially the high-energy-consuming ones. According to industrial structural statistics, the proportion of the added value of six high-energy consumptive industries to the total figure reached around 30 percent and that of the power consumption of the six industries to the total amount exceeded 60 percent. So from this point, the elasticity of industrial power consumption differs in relation with their output proportions. Their correlation is not linear. When the economy is on a downturn, the high-energy-consuming industries slide quickly and power consumption drops even faster. All the released economic figures demonstrate the changing direction.

Thirdly, the decline of power consumption in the first quarter is also related to the structural readjustment, transformation of the development mode, application of energy conserving technologies, technological innovation, energy conservation and emissions reduction during the past years. The energy consumption per unit of GDP decreased by 4.8 percent last year and the figure rose to 5.6 percent in the first quarter of this year. The application of energy conserving technologies helped reduce power consumption so the decline of consumption was more remarkable.

Fourthly, the decline of power consumption is also affected by anomalies such as the weather. This spring has been very warm and the temperature this March has been higher than normal. According to figures from the Meteorological Bureau, the national average temperature this March reached 5.8 centigrade compared with 4.1 centigrade in March of last year. It was the fourth highest temperature in March in the past 50 years and the rise of temperature helps with energy conservation.

Fifth, I'll talk about the relation between the railroad freight volume and industrial added value. Over the past few years, the fluctuation of railroad freight volume has drawn great attention and its general trend is declining. What's the reason behind this? It relates to the product structure of railroad freight. Over 50 percent of the freight is coal, iron ore and other major commodities. But during the downward economic period, the demand for those raw materials is declining, which has a negative influence on railroad freight volume. In addition, the readjustment of the industrial structure and spatial distribution in recent years should also be taken into consideration. Formerly, the coal produced in western China was transported to the eastern regions. But now, many power plants have been built in the west so there is no need to do that. After the layout of enterprises was optimized, most factories have been built in the places where the raw materials are produced. The structure of transportation has also witnessed great changes over the past few years. The number of highways and high-speed railways has kept increasing in the past ten year and the shipping trade industry has also boomed. Some freight transport can be conducted in multiple ways. For example, water transport may be cheaper than rail transport so we can make choices. So the decentralization of diversified transportation modes is another reason for the decline of railroad freight. Its proportion of the whole volume is currently less than 10 percent, and the figure in the first quarter was close to 10 percent, so its influence on the macro-economy is declining, although they are closely related. When we analyze the economic situation by quoting official statistics, we should take into account the influence of structural change, especially elasticity and marginalized changes. That's a good question. Thank you.

As for the second question, China's future economic growth will mainly rely on pent-up domestic demand, which generally speaking, will come from China's campaigns for industrialization, urbanization, agricultural modernization and informatization as well as from the "Internet Plus", "Made in China 2025" and "Industry 4.0" strategies, which will gradually interact with each other and release their respective potential to spur investment and consumption.

Specifically, we can analyze this from two perspectives: investment and demand.

China's potential in the investment front is relatively strong despite the slowdown of fixed-asset investment growth, especially in the real estate industry. This year's infrastructure investment grew 23.1 percent in Q1, up 0.6 percentage points compared with the same period last year. Over the past years, thanks to genuine efforts from governments of all levels, China's infrastructure improved greatly, but it still lags far behind developed countries, especially in its midwest region in terms of roads and railways. Moreover, there is still room for investment in creating facilities for environmental protection and community services like underground pipe networks.

In terms of domestic demand, China also enjoys huge potential, as the country had already been built into a comparatively well-off society by 2000, and it is currently undergoing consumption restructuring from mainly consuming for basic needs like food and shelter to consuming for other causes like education and travel. For example, China's auto industry will still enjoy good prospects for further growth despite the growth spurt in the past several years. Compared to the average car ownership of 200 vehicles per 100 households in America and 150 vehicles per 100 households in developed European countries, China still enjoys much room for development, as its rate of car ownership number currently stands at less than 35 per 100 households in the country as a whole. Moreover, spending in tourism, education, eldercare, public health and culture is bound to unleash further growth in investment in related industries. The fact that Chinese people made 100 million trips abroad last year indicates that there will also be a huge market in domestic travel if infrastructure construction speeds up. Besides, the change in China's demographic structure, notably its aging process, will spur huge demand in eldercare.

As consumption rapidly upgrades, the Chinese market will lack neither growth points nor consumption hotspots, but will in fact unleash huge potential, something that hinges much on increasing people's income and improving the consumption environment. Only through adopting multiple measures and through multiple means can we fully explore China's huge consumption potential and ultimately boost confidence in China's economic growth.