Economy is still at a manageable level, but downward pressures do exist

China's economy is cooled in the first quarter due to a decline in both exports and investments growth, but remains within a reasonable range. Economic growth and employment rates have remained higher than the bottom line.

Data from National Bureau of Statistics show GDP increased 7.4 percent year-on-year in the first quarter, 0.3 percentage points lower than the same period and the fourth quarter last year, but within the reasonable range of around 7.5 percent.

Government won't resort to short-term stimulus

China's first quarter GDP grows 7.4%

The good news is the employment situation is favorable this year. According to data collected by Guangdong province, the rate of employees who returned to work after Spring Festival reached 92 percent, up 2.8 percent from the same period last year. Meanwhile, consumer price index rose 2.3 percent year-on-year, down 0.1 percentage point than last year, which is lower than the target of 3.5 percent.

However, it cannot be denied that downward pressure on economic growth is increasing, primarily due to real estate market adjustments. Investment grew slower, at 17.6 percent, in the first quarter, down 3.3 percent from the same period last year and 2.1 percent compared to all of last year.

The main reason behind the scenario is the adjustment of the real estate market. We estimated a pullback in real estate investment, mainly due to a sales decline of commercial residential buildings and cooling capital investment, has lowered total investment growth by 2.2 percent this year, signaling a "turning point" in the property market.

Another factor is the industrial overcapacity that caused the continuous drop in producer prices. In the first quarter of 2014, the PPI fell 2.2 percent year-on-year, 0.3 percentage points higher than the same period of last year and 0.6 percentage points higher than the fourth quarter of 2013, which produced negative impact on investment expectation and growth of enterprise performance.

The decline in exports also created downward pressure on the economy. Exports in the first quarter plunged 3.4 percent year-on-year, the second negative growth after the global economic crisis. Negative growth in the Chinese mainland exports was caused by a sharp drop in transit trade in Hong Kong. In same period, exports to Hong Kong fell 31.3 percent year-on-year, which led to 6.5 percent drop on export growth. Apart from the negative impact caused by a decline in Hong Kong exports, China's trade to other regions increased, albeit the global trade market has yet to recover. Therefore, China's exports growth outlook remains grim.

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