Chinese economy grew by 7.7% in Q4 2013

During the fourth quarter of 2013 the Chinese economy grew by 7.7%, matching 2012’s growth rate and showing signs of stabilizing, the National Bureau of Statistics announced today. During the third quarter the economy had expanded by 7.8%

Although China now is expanding at its slowest rate in decades, Q4 2013’s rate was higher than the official target of 7.5%.

Head of the Beijing bureau of Market News International, David Wilder, said to the BBC “It’s very much within the range of what the government was aiming for.

The fact is that the Chinese economy mustn’t and can’t grow at the double digit rates we’re used to seeing. And in some regards slower growth is actually encouraging because it suggests that it’s moving to a more sustainable pace.”

The Chinese economy in 2013 grew by…:

  • 7.7% for the year.
  • 7.7% in Q1 2013 (annualized).
  • 7.5% in Q2 2013.
  • 7.8% in Q3 2013.
  • 7.7% in Q4 2013.

China aims to rebalance its economy

This year the Chinese Communist Party aims to maintain healthy growth while at the same time rebalancing the economy, moving away from investment-led growth to one that is driven by domestic demand.

If growth continues to stabilize in a controlled manner, the Chinese government will be better able to impose some difficult changes without having to face a rise in unemployment which could trigger social tension.

The Communist Party has detailed some proposals to encourage domestic consumption, including giving peasants more rights to land and freeing up the financial sector so that small businesses have better access to lending.

Economists in China are forecasting GDP (gross domestic product) growth of between 7% and 8% this year. Chinese leaders are today starting to address the cost of decades of double-digit gains, which include financial fragility, pollution, corruption and squandered spending.

Current government measures will inhibit growth

Some of the measures the authorities are taking, such as bearing down on credit growth, clearing local government debt and closing factories riddled with overcapacity, inhibit growth.

The Wall Street Journal quotes Robert Zoelick, former president of the World Bank, who said “China’s leadership has recognized that China needs to change its growth model. It won’t be a Big Bang process. We’ll see, in Chinese fashion, a series of steps, which if successful will pick up momentum ”

Despite aiming to rely less on investment and export led growth and more on domestic consumption, China is encouraged that the US and European economies are improving, because it means likely export growth to the two regions. The World Bank is predicting a 4.6% increase in world trade this year compared to 3.1% in 2013.

China still very dependent on investment-led growth

According to data released today by the National Bureau of Statistics, China’s $9.4 trillion (56.9 trillion yuan) economy continues to be extremely dependent on investment for expansion. Fifty-four percent of GDP growth in 2013 came from capital formation, compared to 50% taken up by consumption. However, net exports were 4.4% down as an economy growth factor.

Capital formation is the creation of capital goods, i.e. goods used to create products and provide services.

Tim Condon, an economist who works at ING in Singapore said to Reuters “I don’t see any evidence of a rebalancing last year.”