China’s economic expansion fails to hit government’s growth target
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Version 0 of 1. China’s economy expanded by 7.4% in 2014, its slowest rate in a quarter-century and below the government’s growth target, Chinese authorities announced on Tuesday. The announcement by the National Bureau of Statistics in China lays bare the challenges that Chinese policymakers confront in restructuring the country’s economy, even as they promise that this “new normal” of slowing growth is a blessing in disguise. The reported growth figure represents a drop from 7.7% growth in 2013 and China’s slowest growth since 1990, when the country grappled with inflation and international sanctions precipitated by the army’s massacre of pro-democracy protesters in Tiananmen Square. The government’s 2014 growth target was 7.5%. China surpassed the US as the world’s largest economy last year, according to some metrics, and its economic health will have a tangible effect across a dizzying swath of the global population, from Brazilian farmers to African contractors and Australian exporters. Yet the ruling Communist party’s top priority is maintaining control and stability at home. For top officials the downturn highlights several lurking threats and challenges: massive piles of local government debt; falling real estate prices; and widespread overcapacity, as local officials continue to pump funds into investment projects — roads, luxury apartments, stadiums — that ultimately sit unused. “China over-invested from 2009 to 2014 without the demand to make the investment pay off. So it really needs to consolidate,” said Andy Xie, an independent economist in Shanghai. “The financial system is government-controlled, so I don’t think the government will allow too many bankruptcies. The good thing is that this makes the economy stable. But the bad thing is that this can drag on.” For years, Chinese authorities have been pushing to shift the country’s primary economic drivers from investment and manufacturing to consumption and services – to transform China from the world’s factory into the world’s shopping mall. The statistics bureau presented its 2014 economic indicators as evidence that the shift is going well. Consumer spending and retail sales continued to grow. China’s economy “has been running steadily under the new normal, showing good momentum of stable growth, optimised structure, enhanced quality and improved people’s livelihood,” the bureau said in a report. Chinese president Xi Jinping began using the term “the new normal” in May, implying that officials would prioritise the quality of China’s growth over growth for its own sake. Xi urged the public to “remain cool-headed as the brakes went on,” reported Xinhua, the state newswire. Three decades of breakneck economic growth “came at a high price of choking air pollution and exhaustive exploitation of natural resources,” it added. This was an acknowledgement that environmental degradation now poses a greater risk to the country’s future than economic uncertainty. The question remains, however, of whether the government will be capable of making the sacrifices necessary to achieve its goals. Analysts say that a more dramatic slowdown could lead to job losses and, in a worst-case scenario, public outrage – a nightmare for a regime obsessed with maintaining its grip on power. “I think if the growth rate goes lower than seven, there could be some social issues,” said Cao Heping, an economics professor at Peking University. Local governments are still seeking cash infusions to complete long-stalled infrastructure projects, which is hampering efforts for systemic reform. Authorities are expected to lower the growth target to 7% in 2015, giving them some much-needed room for positive spin. The World Bank’s biannual Global Economic Prospects reports for 2015 said that China’s economy would expand by 7.1% in 2015 – low enough to exacerbate the downturn, but not to pose a significant threat to the world’s financial health. Other institutions have been less bullish: the International Monetary Fund has revised down its Chinese growth projection for 2015 to 6.8%, and Oxford Economics predicted 6.5%. Some of the country’s greatest economic challenges, experts say, lie beyond the purview of even the most powerful policymakers. The country’s labour force has been shrinking since 2012, squeezed by an ageing population and three decades of a draconian family planning policy. Authorities say the country could lose 67 million workers between 2010 and 2030. Although the controversial one-child policy was liberalised last year, the revision’s effects have fallen far short of expectations. “The labour market has been very tight when the economy is slowing,” said Mark Williams, chief Asia economist at London-based Capital Economics. “What that tells us is that you can’t beat the slowdown in China’s economy as it’s a structural slowdown, it’s not one that would be reversed by policy easing.” |