China’s economy grew by 7.7 percent for both the fourth quarter and the full year, narrowly missing estimates of a 14-year low growth rate. From Joe McDonald at the Associated Press:
Those figures appeared to mask a much sharper deterioration during the three months ending in December. Factory output, exports and investment all weakened. On a quarter-to-quarter basis, economic growth dropped to 1.8 percent from the previous period’s 2.2 percent.
“The economy is slowing quite rapidly. The slowdown has accelerated during the quarter,” said economist Dariusz Kowalczyk of Credit Agricole CIB.
That weakness might force Beijing to resort to state-led investment to support an expansion. That would boost debt levels that already have prompted unease about the health of China’s financial system and could hamper efforts to shift to more self-sustaining growth based on domestic consumption. [Source]
While China managed to beat estimates of 7.6 percent growth, Reuters claimed that the world’s second-largest economy is clearly losing steam. The Wall Street Journal’s Alex Frangos struck a similar tone, noting several worry signs beneath the surface of the latest data:
Much of the rationale behind Beijing tolerating sub-8% GDP growth is that in so doing, it could start to steer the economy away from reliance on heavy investment and toward a more consumption-driven economy. But such a rebalancing will be difficult if consumer incomes aren’t rising fast enough.
It is possible the drop in disposable income growth—to 7% from 9.6% in 2012—is a blip. Some of it could be survey respondents unwilling to report unofficial “gray” income given the government’s crackdown on conspicuous consumption and ill-gotten gains.
If the slide continues, however, difficulties could be in store for companies betting on the rise of the Chinese consumer. […] [Source]
Still, Keith Bradsher of The New York Times pointed out that China is growing nearly four times as fast as the United States in dollar terms:
The triple combination of faster real economic growth, faster inflation and an appreciating currency explain how China’s economy more than quintupled in dollar terms from 2003 to 2013, to $9.2 trillion last year — still a little more than half the size of the American economy, but catching up fast.
The question following the data on Monday is how much longer China can keep up the pace — particularly given the extent to which China has financed its growth in recent years with an extremely rapid expansion of money and credit.
There are many signs that China’s tempo is flagging. Nominal economic growth has nose-dived in China from a peak of 22 percent in 2007 to almost 18 percent in 2010 and 2011 to a little less than 10 percent in each of the past two years. [Source]
Gwynn Guilford at Quartz, meanwhile, looks ahead at 2014 and worries that the Chinese government is doing too much to juice the economy and meet its targets:
In order to make sure this year’s growth comes in anywhere close to 2013 target, the government will need to roll out a new stimulus and keep credit growth booming. That encourages businesses to pile on more debt—which is really dangerous for a country that’s already shelling out 39% of its GDP to pay off interest on existing debts.
Because of the distortions created by stimulus spending, many economists believe China’s investment is increasingly flowing into projects—or even worse, into real estate—that aren’t profitable. The cost of creating overcapacity is slower growth in the future. The government might not allow a much lower rate of GDP growth in 2014 (we’ll have to wait until the government holds its big annual meeting in March to find out what this year’s target is). But it has to happen eventually—and the sooner, the better. [Source]
