During the third quarter of 2013, economic growth in China grew at an accelerated rate, after three quarters of falling growth.
Its economy expanded 7.8% during Q3 2013, compared to 7.5% in Q2.
Fears that the world’s second largest economy might be losing steam have been partly allayed after the latest figures were published.
However, this optimism has been tempered by September figures, which suggest slower growth in industrial output, retail sales and fixed asset investment. Exports in September were 0.3% lower than in August.
This Market Business News article also contains information on how China historically has been dependent on exports, how inflation may cool credit growth, and whether the rising Yuan might undermine China’s economic growth.
According to China’s NBS (National Bureau of Statistics), economic growth in China during the first nine months of 2013 was 7.7%.
Xinhuanet reported that 3rd quarter results were in line with what the market had expected and keeps China on track to meet it target growth for 2013 of 7.5%. The newspaper warns that growth may slow down during Q4 2013.
Xinhuanet quotes an analyst at the China International Corp., Peng Wensheng, who forecasts GDP will grow by a more moderate 7.5% in the fourth quarter, but expects things to pick up during Q1 and Q2 next year.
The BBC quotes Song Seng Wun, a senior economist with CIMB Research, who said “This is an indication that China’s economic growth is holding up in a range which is within the comfort zone of both the Chinese policymakers as well as global watchers.”
Economic growth in China historically dependent on exports
Economic growth in China, which has been unequaled over the last two decades, has depended heavily on exports, especially in its manufacturing sectors. Government spending on infrastructure has also played a part.
The 2008 global financial crisis, followed by the Great Recession hurt U.S. and European demand for exports from emerging economies, which in turn slowed down China’s GDP growth.
China reacted by trying to boost domestic demand. As from August 1st, 2013, sales tax (value added tax, VAT) has been suspended, as has turnover tax for companies with monthly sales below $2,257 (¥20,000). Authorities say this latest tax break for small businesses should help over 6 million small businesses.
Inflation may spur authorities to cool credit growth
As inflation reaches a 7-month high, experts believe authorities will start taking measures to cool credit growth, which will undermine economic growth in China.
Ting Lu, an economist at Bank of America-Merrill Lynch, in an interview with Reuters, said “The growth peak was behind us in the third quarter. We believe the People’s Bank of China will slightly shift its monetary policy from a moderate expansion in the third quarter to a neutral stance.”
Rising Yuan threatens economic growth in China
China’s currency – the Yuan – had five consecutive days of record highs this week. A strong yuan will make Chinese exports less competitive in the world market.
In a press conference, National Bureau of Statistics spokesman Sheng Laiyun said:
“The economy is facing a complex and uncertain domestic and international environment. In addition, we have accumulated chronic structural imbalance problems in our economy and need to deepen reforms.”
According to the IMF, Chinese policymakers have opted not to stimulate the economy. The country is aiming for balanced and sustainable growth.