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Finance & Economy

China’s economy posts slowest growth since 1999

China Construction SiteChina’s economy grew at its slowest pace in 13 years in 2012, though a year-end spurt supported by infrastructure spending and a jump in trade signalled the foundation for the stable growth path Beijing says is vital for economic reform may be in sight.

Evidence of a burgeoning recovery in exports, stronger than expected industrial output and retail sales, together with robust fixed asset investment, all indicated that Beijing’s pro-growth policy mix has gained sufficient traction to underpin a revival without yet igniting inflationary risks.

Year-on-year growth of 7.9 percent in the fourth quarter beat a consensus forecast of 7.8 percent in a Reuters poll and snapped a streak of seven consecutive quarters of slowdown.

The performance was at the upper end of the 7-8 percent rate economists reckon is needed to deliver on reforms essential to China’s long-term development after three decades of red-hot, double-digit growth.

Full year growth of 7.8 percent was also just ahead of the poll’s 7.7 percent call and, although the weakest since 1999, comfortably ahead of the government’s 7.5 percent target, which just months ago seemed to some economists to be in jeopardy.

“It’s kind of like a golden spot – stronger growth, but not strong enough to trigger a lot more inflationary concern. That’s perfect for equity markets.” said Dariusz Kowalczyk, Asia ex-Japan senior economist and strategist at Credit Agricole CIB in Hong Kong.

“What everybody wants is growth that’s strong enough to give us peace of mind that revenues will increase and there is no hard landing risk, but not excessive, not strong enough to trigger inflation. And this is what I think we are getting. I’m bullish on China still.”

Market reaction was generally upbeat, with Asian shares advancing and platinum and palladium following suit, while oil traders took the opportunity of data confirming the recovery to book profits after two sessions of steep rises.

China’s new leaders must stabilise the economy this year to keep employment high while avoiding a surge in housing prices and inflation that could undermine reforms needed to overhaul the country’s export-oriented growth model.

Without stability, incoming President Xi Jinping and Premier Li Keqiang, who are set to be confirmed in March, have no chance of delivering a slew of reforms they say are needed to tackle a host of financial, industrial and income imbalances that threaten China’s future.


China’s statistics chief, admitting the country’s wealth gap was “relatively large”, released a recalculated indicator of economic inequality on Friday, the first time in several years that officialdom has addressed the sensitive issue head-on.

China’s Gini coefficient stood at 0.474 in 2012, down from 0.477 in 2011 and from a peak of 0.491 in 2008, Ma Jiantang, the head of the National Bureau of Statistics, told reporters at a press conference on 2012 economic performance.

The index ranges from 0 to 1, with the 0.4 mark viewed by analysts as the point at which social dissatisfaction may come to a head.

China’s leaders say rebalancing the economy to consumption and away from the investment and export model followed for the last 30 years holds the key to tackling inequality, but detailed data on Friday underlined the scale of that task.

While consumption made the biggest contribution to growth in 2012, with a 51.8 percent share, Q4 marked the third consecutive quarter of decline.

The fall has been driven by the government’s focus on using investment spending as the main expedient to underpin an economy still levered to external demand.

Exports generate about a third of economic activity and sinking demand from foreign customers in struggling European Union and United States economies dragged on growth in 2012. Net exports made a negative 2.2 percent contribution, data showed.

With China’s consumers still relatively poor – average annual urban disposable income was just 21,810 yuan ($3,500) in 2011 – it remains too hard for the government to rely on them to help compensate for any shortfall from the export sector.

“There’s just not enough money,” said Liu Jiongda, 35, a manager at a Shanghai logistics company who earns just over 11,000 yuan ($1500) per month, more than half of which goes straight into a mortgage on a property he bought in 2009.

“If the government wants a so-called consumer culture, they have to cut the amount of tax I have to pay. That is simple. If I have more money then I’ll be willing to spend more.”

Investment meanwhile, at 50.4 percent, has picked up as the new leadership has looked to underpin a recovery with spending on infrastructure – a tried and tested method.


Quarter-on-quarter growth of 2.0 percent was below the market’s expectation of a 2.3 percent rise, which was taken as a sign that the recovery’s momentum is not strong enough to worry the authorities into pre-emptive action to snuff out any whiff of inflation – China’s long term policy pre-occupation.

The People’s Bank of China, which cut interest rates twice in mid-2012 and cut banks’ reserve ratios (RRR) three times since late 2011, has since switched to short-term cash injections via open market operations to guide monetary policy, apparently wary of fanning price pressures or encouraging a property bubble.

“We need to keep vigilant against inflation,” NBS chief Ma Jiantang told a news conference on Friday.

The risk of policy tightening looms as growth gathers pace, leaving Beijing with a fine line to tread to ensure the recovery continues without reigniting speculative activity in the key area of real estate.

Data released alongside GDP numbers on Friday showed home prices extending a slow rise in December, with an average rise of 0.3 percent month-on-month in 70 major Chinese cities, the fifth month in the last six to show an increase, despite government efforts to temper prices.

Real estate investment, which accounted for 13.8 percent of China’s gross domestic product in 2012, rose 16.2 percent last year from a year earlier and remains a key component of overall fixed asset investment – the cornerstone of Beijing’s recovery strategy.

Annual fixed asset investment (FAI) growth was 20.6 percent in 2012, versus the 20.7 percent forecast in the Reuters poll.

“Typically FAI falls off at the end of the year – on average December FAI is 1 percentage point lower than November, but this time there was only a 0.1 percent edge off,” said Ken Peng, an economist at BNP Paribas in Beijing, highlighting the strength of investment spending and the risk that it could be fuelling renewed speculation.


Investment spending was the key near-term concern of Ren Xianfang, senior analyst at IHS Global Insight in Beijing.

“We have to watch the investment numbers especially because China has started (to put) controls on local financing, so this could limit fund raising and investment by local governments,” she said.

“So far it’s just talk, but if they implement measures like the sharp tightening in 2011 the impact on growth could be very substantial,” Ren added, highlighting Beijing’s policy dilemma.

Other data released alongside GDP showed industrial output grew 10.3 percent in December from a year ago, versus expectations of 10.1 percent.

Retail sales in December rose 15.2 percent on a year ago versus an estimated 14.9 percent in a Reuters poll.

A fourth-quarter recovery had been heralded by an acceleration in industrial output in October and November and a jump in exports in December, although some analysts believe last month’s sharp expansion in trade could be a blip.

China’s exports grew 14.1 percent last month compared with a year earlier, racing past market expectations of 4 percent and November’s 2.9 percent pace.

Ting Lu, chief China economist at Bank of America/Merrill Lynch in Hong Kong, was confident that the data would not change the near term policy stance.

“Maintaining stable growth is the new leadership’s key policy mandate in 2013,” Lu wrote in a note to clients, adding that he expected a growth target of 7.5 percent to be adopted for 2013 and policy calibrated to delivering it.

“Pro-growth policies in 2012 will be extended into 2013, and big-bang stimulus will be avoided unless there is another global financial crisis. Within 2013, policy will likely be marginally tightened towards the second half of 2013 on concerns of rising inflation, rising home prices, investment overheating and financial system risks,” Lu said.

Source: Reuters “China’s economy posts slowest growth since 1999”

About chankaiyee2

Author of the book "Tiananmen's Tremendous Achievements" about how with the help of Tiananmen Protests, talented scholars with moral integrity seized power in the Party and state and brought prosperity to China. The second edition of the book will be published within a few days to mark the 25th anniversary of Tiananmen Protests All the parts in the first edition remain in the second edition with a few changes due to information available later and better understanding. There are also some changes for improvements of style. The new parts are Chapters 12-19 on events in China after the first edition was published: The fierce power struggle for succession between reformists and conservatives; Xi Jinping winning all elders’ support during his mysterious disappearance for 2 weeks in early September, 2012; and Xi Jinping Cyclone. Chan Kai Yee's new book: SPACE ERA STRATEGY: The Way China Beats The US An eye-opening book that tells the truth how the US is losing to China. The US is losing as it adopts the outdated strategy of Air-Sea Battle while China adopts the space era strategy to pursue integrated space and air capabilities: It is losing due to its diplomacy that has given rise to Russian-Chinese alliance. US outdated strategy has enabled China to catch up and surpass the US in key weapons: Hypersonic weapons (HGV) that Pentagon regards as the weapon that will dominate the world in the future. Aerospaceplane in China’s development of space-air bomber that can engage enemy anywhere in the world within an hour and destroy an entire aircraft carrier battle group within minutes. Anti-satellite (ASAT) weapons, anti-ASAT weapons, stealth aircrafts, drones, AEW&C, etc. The book gives detailed descriptions of China’s weapon development based on information mainly from Chinese sources that the author monitors closely. U.S. Must Not Be Beaten by China! China is not a democracy. Its political system cannot prevent the emergence of a despotic leader or stop such a leader when he begins to bring disasters to people. A few decades ago, Mao Zedong, the worst tyrant in world history did emerge and bring disasters to Chinese people. He wanted to fight a nuclear war to replace capitalism with communism but could not bring nuclear holocaust to world people as China was too weak and poor at that time. If a despot like Mao Zedong emerges when China has surpassed the US in military strength, world people will suffer the misery experienced by Chinese people in Mao era. China surpassing the US in GDP is not something to worry about as China has the heavy burden to satisfy its huge population, but China surpassing the US in military strength will be world people’s greatest concern if China remains an autocracy. US people are of much better quality than Chinese people. What they lack is a wise leader to adopt the correct strategy and diplomacy and the creative ways to use its resources in developing its military capabilities. I hope that with the emergence of a great leader, the US can put an end to its decline and remain number one in the world. China, US, space era strategy, air-sea battle, space-air bomber, arms race, weapon development, chan kai yee



  1. Pingback: Job prospects grim for China’s 7m fresh grads | China Daily Mail - May 15, 2013

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