While the U.S. economy seems to be growing at a steady rate, the Chinese economy grew at the slowest rate in nearly a quarter century. That doesn’t bode well for all the other countries that depend on Chinese investment
Alexandra Stevenson wrote for The New York Times that the slowdown is rare:
As demand for exports slips and the real estate sector cools, China has been looking to consumers to help pick up the slack. But the country’s slowing growth will complicate those plans.
The economy increased by 7.3 percent in the last quarter of 2014 and 7.4 percent for the full year, the country’s National Bureau of Statistics said Tuesday. While many countries would welcome such growth, the rate fell short of the government’s target of 7.5 percent for the year, a rarity for the highly managed economy.
China has rarely experienced a sustained slowdown in its economy, which has expanded seemingly unabated for decades. The last time yearly growth dipped below 7.5 percent was in 1990, after the Tiananmen massacre prompted international sanctions.
The Wall Street Journal story by William Kazar and Richard Silk said that despite being tightly managed, the Chinese government is calling the growth rate “a new normal”:
The slower growth, which Beijing has called a “new normal,” was recorded on the back of higher, targeted spending on needed infrastructure in areas such as railways and subways and after the central bank cut interest rates for the first time in over two years and ordered bank loans be directed to farmers and small businesses.
Given that, the absence of more vigorous growth has raised questions of whether Beijing will need to take more aggressive actions in 2015 to maintain an adequate expansion to provide enough jobs.
“This year will look very much like last year, only worse,” said Andrew Polk, economist at the Conference Board. “I expect authorities to continue to try to lower the cost of funding to key market players pinched by the slowdown.”
On Monday, Premier Li Keqiang said there was considerable downward pressure on the economy though he described the 2014 performance as “within a reasonable range.”
The Financial Times story by Jamil Anderlini that the growth rate was below what the Communist party said it needed to be to avoid problems:
As recently as 2010, the Communist party estimated it needed annual growth of at least 8 per cent to avoid job losses and social unrest that could threaten its grip on power.
But when it announces its 2015 GDP target in March, the party is expected to lower it to “around 7 per cent”.
After a change in methodology last year, the World Bank and International Monetary Fund estimated China’s economy would surpass that of the US in 2014 in terms of purchasing power parity.
This measure attempts to account for differences in prices of non-tradable goods and services in different economies.
The Chinese government disputes the methodology and the estimate and tried for nearly a year to block publication of the report showing it now has the world’s biggest economy.
Sophia Yan wrote for CNN Money that China is trying to boost its economy despite saying it was acceptable:
China continues to face a number of long-standing risks, such as ballooning government and corporate debt and a weak property sector.
In the face of a sustained downturn, the government has deployed incremental measures to boost the economy. Beijing has accelerated infrastructure projects, cut interest rates and tried to bolster the flagging property market.
Other efforts to support the financial markets have largely flopped — a much-hyped pilot program to connect the Hong Kong and Shanghai exchanges has attracted relatively little investor interest.
Experts say a drop in global oil prices will provide a mini-boost to China. Costs will be lower for consumers and businesses, and the government should have more room to carry out reforms.
Bloomberg’s story said that investors should be heartened that China’s actually doing better than expected.
“Markets should breathe a sigh of relief as the economy enters 2015 in a better shape than had been expected,” said Dariusz Kowalczyk, an analyst at Credit Agricole CIB in Hong Kong. “The data lowers the need for further stimulus, but there remains some room for easing as risks are skewed to the downside.”
Industrial production rose 7.9 percent in December from a year earlier, compared with the 7.4 percent median forecasts of economists surveyed by Bloomberg, and faster than the initial estimate of 7.2 percent for November. Retail sales increased 11.9 percent from a year earlier, compared with the 11.7 percent seen by economists.
Fixed-asset investment excluding rural areas expanded 15.7 percent last year, meeting the median estimate of economists surveyed by Bloomberg News. Economists’ estimates for GDP growth last quarter ranged from 6.9 percent to 7.6 percent.
Quarter-on-quarter, China’s performance was less robust, slowing to 1.5 percent growth in the three months through December from 1.9 percent in the third quarter.
Slipping oil prices could mean that consumers will spend more, boosting China’s manufacturing. But it’s hard to know whether the slide will continue or if the government will prop up the economy and increase the rate. What is clear is that the world’s largest economy will have ripple effects on everyone else, some of which we likely haven’t thought of yet.
