Monday, March 10, 2014
The Washington Post
BEIJING — China’s economy grew by a robust 7.7 percent last year, still one of the strongest performances globally, government data showed Monday, although signs of a slowdown emerged late in the year as authorities tried to rein in a debt-fuelled investment binge.
China’s economy has cooled since recording double digit rates of growth in the run-up to the global financial crisis of 2008, but was propped by a surge in investment in infrastructure and real estate. Amid concern that the debt burden was rising to dangerous levels, the authorities tightened credit toward the end of last year, and investment growth slowed.
“This might be bad news for growth numbers, but the good news is that the authorities are no longer adopting loose monetary policy whenever there is a slowdown,” said Shuang Ding, senior China economist at Citigroup in Hong Kong. “They need to be able to accept some slowdown in growth, and slowdown in credit growth, to reduce financial risks.”
The Communist Party has set great store in maintaining a fast pace of economic growth to bolster its legitimacy with the Chinese people. But this growth-at-all-costs strategy not only has wrought terrible damage on the environment but has also allowed dangerous imbalances to build up within the economy, which has become far too reliant on investment rather than domestic consumption for many people’s comfort.
Experts say the investment binge cannot be sustained indefinitely without producing wasteful spending and creating a mountain of debt.
In November, President Xi Jinping announced a broad agenda for reform meant to tackle those imbalances, but that reform process has yet to begin in earnest, as the authorities acknowledge.
“Generally speaking, China’s economy showed good momentum of stable and moderate growth in 2013, which is a hard-earned achievement,” Ma Jiantang, chief of the National Bureau of Statistics, said during a news conference. “However we should keep in mind that the deep-rooted problems built up over time are yet to be solved in such a critical period for China’s economy.”
Slowing the growth in credit is just the first step in that reform journey, economists say. The government needs to rein in politically powerful state-owned enterprises and create a more level playing field for the private sector, while also boosting social safety nets so its citizens spend more of their income rather than saving. None of that will be easy and will involve taking on powerful vested interests with the Party.
At the same time, mindful of the risks of social instability that could undermine one-party rule, the government aims to achieve this without letting growth dip too far. The target for 2013 was 7.5 percent, while Premier Li Keqiang warned in November that the economy needed growth of 7.2 percent to ensure a stable jobs market.
Nevertheless, there is some good news on the horizon in the form of a pick-up in the global economy, said Louis Kuijs, China economist at the Royal Bank of Scotland in Hong Kong. That bolstered Chinese exports toward the end of last year and cushioned the impact of the investment slowdown. Together with the underlying strength of the Chinese economy, a global recovery could help give the authorities room to maneuver, he said.
“The key story in 2014 is how the government will balance this need for some reining in of credit growth on the one hand, with the desire for economic growth that we still see in Beijing,” he said. “The positive scenario is that we get enough organic growth that there will be enough room, and resolve, to continue with the firming up on the monetary side.”
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