China Headlines: China's new growth engines pick up speed

Despite a weak housing market and poor local investment, China's economy is starting to show tentative signs of revival. New growth engines are just beginning to drag the world's second largest economy back on track.

HI-TECH IN POLE POSITION

Industrial growth picked up in May after hitting a six-year low in March and not doing much better in April, the National Bureau of Statistics (NBS) announced on Thursday.

Industrial output grew 6.1 percent year on year in May, up from 5.9 percent in April, and 5.6 percent in March.

Industrial output -- officially "industrial value added" -- measures the activity of designated enterprises with annual turnover of at least 20 million yuan (3.2 million U.S. dollars).

The most revealing aspect of this latest data is perhaps that output in the high-tech and equipment manufacturing sectors was up 9.3 percent. Consumption also revved up, with retail sales increasing by 10.1 percent.

To encourage domestic spending, import duties on consumer goods were slashed by an average of 50 percent from June 1. The State Council, China's cabinet, on Wednesday gave the green light to "consumption finance" firms, which can extend small loans to the public. Private capital, foreign and domestic banks, as well as Internet companies, will be allowed to set up such firms, basically to fund retail purchases.

OLD ENGINES RUNNING ON EMPTY

Exciting though these upswings may be, they must be balanced against the prolonged cooling of investment and exports.

In the first five months, growth of fixed asset investment, once the key engine for the economy, declined to 11.4 percent, the lowest since 2001.

Before the slowdown, investment growth of more than 20 percent had been sustained for nearly a decade, once hitting an incredible 50 percent. Exports, which used to regularly grow by more than 10 percent, contracted 2.8 percent in May.

First quarter growth declined to its weakest level since the 2009 global financial crisis when growth fell to 6.1 percent in Q1.

On Wednesday, the central bank shaved its 2015 economic growth forecast from 7.1 percent to 7 percent. In March, the central government lowered the annual target from last year's 7.5 percent to 7 percent.

KEEP CALM AND UPGRADE YOURSELF

In such gloom, it is no surprise that some companies are starting to feel the pinch, but Fan Jianping, chief economist at the State Information Center, sees changes in the industrial sector as evidence that innovation and entrepreneurship are new growth engines in the making.

High-end manufacturing already stands out from a somewhat dilapidated crowd. Output of new-energy automobiles jumped by 280 percent in May, industrial robots by 130 percent and smart TV production expanded by 60 percent.

China is no longer satisfied with low-value products. A national plan -- "Made in China 2025" -- will help the country rebrand itself as a high-tech, high quality, cost effective manufacturer along the whole industrial chain, said Vice Minister of the Ministry of Industry and Information Technology Liu Lihua.

It is a focus on innovation has allowed some Chinese companies -- smartphone manufacturer Huawei being a case in point -- climb the value chain.

Founded on a shoestring budget in 1987, Huawei reported profits of 27.9 billion yuan in 2014. In that year, spending on research and development (R&D) accounted for 2.1 percent of China's GDP, a record high. In some regions, such as Shanghai, that figure reached 3.6 percent.

China still has great potential in many industries -- equipment manufacturing, e-commerce, Internet finance, new energy and environmental protection -- according to Justin Yifu Lin, former chief economist of the World Bank, who believes 7 percent growth could be beaten this year.

There is still a lot of room for manufacturers to upgrade themselves, and this, according to J.P. Morgan China chief economist Zhu Haibin, will be where the future of the Chinese economy lies. Endi