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China's 7.7% Q4 growth sets stage for reforms

Publication Date : 21-01-2014


Chinese leaders will likely push ahead with ambitious economic reforms this year, with the latest growth figures showing a gentler slowdown than expected in the fourth quarter of last year.

The world's No. 2 economy grew by 7.7 per cent in the three months to December, slowing from the previous quarter's 7.8 per cent pace, but ahead of market expectations.

Analysts had forecast a 7.6 per cent growth rate, as China's factories slackened output last month while investments eased amid tighter credit conditions.

A sharper dip than the 7.7 per cent level might have severely tested President Xi Jinping's willingness this year to curb burgeoning local government debt and open up more sectors to market forces. These are potentially drastic reforms that need to take place in a relatively stable environment.

China has "ended the year on a firm footing" with a 7.7 per cent growth for the full year of 2013. This "sets the stage for Beijing to push forward its economic reforms in 2014", noted HSBC economist Qu Hongbin.

Still, Monday's news that China's economy expanded last year by its slowest pace since 1999 weighed on the markets.

The Shanghai Composite Index dropped below 2000 points for the first time in nearly six months and closed 0.7 per cent lower at 1,991.25, while Hong Kong stocks ended 0.88 per cent lower.

Among the government reforms to improve the quality of growth are slashing industrial over-capacity and liberalising the financial sector.

The "negative impact" of such policies could dominate this year, warned JP Morgan economist Zhu Haibin, who expects 2014 growth to fall to 7.4 per cent. This level is in line with the median forecast in a Reuters poll and would mark the slowest pace in 24 years.

Last year's 7.7 per cent rate was level with 2012's.

With Xi having repeatedly signalled his tolerance for slower growth in order to free up resources for reforms and to shift local officials' focus to improving the quality of growth, all eyes are now on whether he will set a 7 per cent growth target for this year, down from 7.5 per cent last year, to drive home this message.

The annual target is set to be unveiled at China's parliamentary meetings in March.

But an even more important goal for Beijing will be reining in its property market bubbles and weaning the economy off investments as the key growth driver, pointed out Tsinghua University professor Yuan Gangming.

China's property market surged to new highs last month, official data released on Monday showed. New home sales crossed the US$1 trillion mark for the first time, rising 27 per cent to 6.8 trillion yuan ($1.1 trillion).

Meanwhile, investments in fixed assets like factories and local government projects like infrastructure accounted for 54.4 per cent of last year's growth, rising from 50.4 per cent.

It replaced final consumption - whose contribution to growth fell to 50 per cent, from 51.8 per cent in 2012 - as the key growth driver.

Final consumption is the total amount of goods and services bought and used in an economy. Meanwhile, net exports of goods and services subtracted 4.4 per cent from growth last year.

Still, China has already made progress in economic restructuring and will see "steady growth" this year, China's statistics bureau chief Ma Jiantang assured a press briefing on Monday.

"Reforms will be the driving force of growth," he added.


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