Econintersect: Not since China sent tanks into Tiananmen Square to quell student protests has China’s GDP growth been as low as the 7.3% recorded for 2014. The last time growth was at this level was 1990. The result for the year missed the government target of 7.5% but was higher than the consensus expectation of 7.2% reported by Bloomberg. The service sector grew faster than manufacturing, especially e-commerce (+49.7%) which aligns with the rebalancing strategy of the government.
China wants to move away from what has been investment as the highest percentage of the economy of any major economic. Consumption, which has recently been as low as 35% of GDP would have to increase to 50% as investment declines. An 8% growth in real wages and a 10.9% increase in consumption is helping with that rebalancing.
Leland R. Hill (The Wall Street Journal) and Peter Cai (China Spectator) have very good reports on the Chinese ecnomy and why the slowing growth is actually good. Hill explains why additional economic stimulus at this point could be counterproductive and not support economic growth in the areas it is needed but only pump some more air into asset bubbles.
Sources:
- China Stimulus Kicks in to Help Keep 2014 Growth Near Target (Bloomberg News, 29 February 2015)
- China’s slowing growth has a silver lining (Peter Cai, China Spectator, 20 January 2015)
- China’s Stimulus Quagmire (Leland R. Miller, The Wall Street Journal, 19 January 2015)
