Monday, January 20, 2014

China economy in 2013 slowest in 14 years, slowdown to continue as it aims to be 'driven by domestic consumption'-BBC

Slowed growth to continue as China moves to a model "driven by domestic consumption:"

1/20/14, "China economic growth at 14-year low," BBC

"China's economy, the world's second-largest, grew at its slowest pace in 14 years in 2013, latest figures show. Its gross domestic product (GDP) expanded 7.7% from a year ago, the slowest pace of growth since 1999.

The growth rate was better than the government's target of 7.5%. The pace of expansion was also the same as 2012. The data highlights the challenge policymakers face in sustaining China's high growth rate as they look to rebalance the economy.

Further slowdown? 
Many analysts expect the country's growth rate to slow as it takes steps to move away from an investment-led growth model to one driven by domestic consumption.

Data released on Monday showed that China's growth rate slowed in the October-to-December quarter. The economy expanded at an annual rate of 7.7% during the period, compared with 7.8% in the previous three months. 

"The figure showed China's economy had touched the bottom in the third quarter of 2013 and then stabilised in the end of last year," said Li Huiyong, an economist with Shenyin & Wanguo Securities in Shanghai.

"We expect the trend will continue in 2014 as the policymakers [are] determined to push forward the reforms to maintain stable economic growth. "We maintain our 2014 GDP growth forecast of 7.5% as we still need to be on guard for the risks from debt problems in the economy."  

Debt concerns
A government-led investment boom has been one of the key drivers of China's growth in recent years.

Chinese banks, especially the big four state-owned lenders, lent record sums of money in the years after the global financial crisis in an attempt to sustain the country's high growth rate.

However, there have been concerns that part of that money has gone towards unproductive investments and that banks may not be able to recover those loans.

The fear among many is that a jump in non-performing loans would not only hurt the country's banking sector, but also have a big impact on its overall growth. 

There are also growing worries over the growth of shadow banking - lending by non-banking companies, in the country. Many critics have warned that shadow banking makes credit less transparent and poses a major risk to China's economic growth.

Earlier this month, various media reports indicated that China had drafted rules calling for greater supervision and monitoring of the shadow banks. Beijing also told major banks to publish data on 12 key indicators, including off balance sheet assets, to enhance their transparency.

Shen Jianguang, chief China economist at Mizuho Securities in Hong Kong, said "the government moves to curb shadow banking and local government debt will cap the growth of investment".

Many analysts have said that while policymakers needed to curb lending growth to address these concerns, such a move was likely to impact China's economic growth.

Growth boost

For their part, Chinese policymakers have taken various steps to try and open up new avenues of growth. 

This includes the launch of a free trade zone in Shanghai, seen as a test bed for reforms in key, and until now, tightly controlled areas of the economy such as the financial and telecom sectors.

Earlier this month, China said it will open some of telecom services within the zone, including call centres and home internet access, to foreign firms. It said it will also allow foreign firms to make gaming consoles within the free trade zone and sell them across China - lifting a ban on gaming consoles that has been in place since 2000.

Other measures to be trialled inside the zone include market-driven interest rates.

China's banking regulator, China Banking Regulatory Commission, said earlier this month that "more policies will be issued to support banking reform in the Shanghai free trade zone".

Many analysts have said that reforming and opening up these key sectors is key sustaining long term growth in China.

However, some others have said that until these reforms are implemented across the country, they are unlikely to have any tangible impact on growth."


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