China is undertaking a determined transition to a more balanced and sustainable growth trajectory. Its economic growth, albeit moderated from its peak to 6.7 percent in the first half of 2016, is still among the strongest worldwide. CPI growth is well anchored at around 2 percent. The labor market remains robust with 13 million new urban jobs being added in 2015. Seven million more were created during the first half of 2016. These latest developments indicate the strong fundamentals of the real economy. High frequency indicators also saw new signs of revival during the first half of the year. PPI strengthened month-on-month; industrial inventory declined for the first time since 2010; the growth of industrial value-added picked up month-on-month; and sales of housing and automobiles increased markedly.
The rebalancing continued to see concrete progress, with the consumption’s contribution to GDP growth reaching 73 percent, up by 13 percentage points over the last year. The current account surplus stayed below 3 percent of GDP, while capital account outflows moderated, resulting in a slight increase of foreign reserves in June.
It is particularly noteworthy that overcapacity has started to phase out in the coal and steel sectors. The service industry contributed 54 percent of GDP in the first half, up by 2 percentage points over the last year. The manufacturing sector is moving up the value chain, as the growth of the high-tech sector outpaced the industrial average by 70 percent. E-commerce has kept growing at double digits, taking up an increasing market share.