Growth Slowing in China

China's finance minister has hinted that economic growth may fall far below 7% in the second half of the year.

Via the BBC:  China’s finance minister signals growth may fall below 7%

China’s finance minister has hinted that economic growth may fall far below 7% in the second half of the year.

Speaking in Washington, Lou Jiwei thought growth for 2013 as a whole would be 7%, but said that even this may not be the “bottom line”.


Mr Lou said he expected growth for the first half of this year to come in at just under 7.7%, implying that he believes growth will slow to just above 6% in the second half.

Until last year, China had grown at an average rate of 10% a year for over three decades.

Throughout that period, the country has never underperformed the government’s growth target, which have typically been much higher than 7.5%.

This was bound to happen, as growth rates of 10% per annum had to come to a close at some point.  And while 7.5% is a substantial growth rate (it would be a cause for great celebration if the US had such a rate), there are legitimate questions about what slowing growth means for China’s overall development process.

For example:

The newly-installed government of President Xi Jinping and Premier Li Keqiang is intent on rebalancing the economy away from reliance on investment, construction, heavy industries and exports, and towards consumer spending by China’s growing middle class.

But the transition is expected to be difficult.

Consumer spending is starting from such a small share of the economy – just a third of total spending, compared with 50%-70% in Western countries.

There are also fears of potential over-investment and bad debts in the construction and industrial sectors, which could come to light as cheap loans to these sectors are cut back.

Last month, the Chinese inter-bank lending market briefly froze up, suggesting that some Chinese banks harbour doubts about the financial health of their peers.

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Steven L. Taylor
About Steven L. Taylor
Steven L. Taylor is a Professor of Political Science and a College of Arts and Sciences Dean. His main areas of expertise include parties, elections, and the institutional design of democracies. His most recent book is the co-authored A Different Democracy: American Government in a 31-Country Perspective. He earned his Ph.D. from the University of Texas and his BA from the University of California, Irvine. He has been blogging since 2003 (originally at the now defunct Poliblog). Follow Steven on Twitter


  1. Dave Schuler says:

    The real question is what China’s actual growth rate will be. Given the Chinese authorities’ track record of, well, bending the truth a mite (something to which our own officials are not completely immune), if they’re willing to admit 7% growth, the real figure is probably a lot lower than that.

  2. michael reynolds says:

    So, a billion and a half people have been conditioned to rising expectations which will now most likely be disappointed. The cities will still be full of swaggering billionaires while the poor out in the provinces have advanced not at all, except that they can now watch those swaggering billionaires on TV.

    Rising expectations, vast differences in wealth, no legitimate political outlet, a party determined to maintain its grip by any means necessary ruling a huge country with third world infrastructure. Gosh, does anyone else smell instability? Or is that just smog?

  3. Matt Bernius says:

    @Dave Schuler:

    The real question is what China’s actual growth rate will be […] if they’re willing to admit 7% growth, the real figure is probably a lot lower than that.

    This! Which highlights the problem of comparing US economic growth to what the Chinese are reporting.

    There’s a larger issue here as well — The concept of sustained, continual and substantial growth has always been a problematic metric. Unfortunately it’s on that far too many have bought into to devastating effects.

    As I’ve pointed out to students in the past, in biological systems, sustained year-over-year high single digit (let alone double digit growth) goes by another name: cancer.

  4. stonetools says:

    A slowing China means a slowing world economy-and a slowing US economy. That might create instability everywhere, not just in China.

  5. Dave Schuler says:


    Could you connect the dots for me a bit more, stonetools? I can see how a slowing Chinese economy could be a problem for countries from which China purchases raw materials, say, Australia. How would that create instability here?

  6. stonetools says:

    @Dave Schuler:

    First of all, US-China trade is significant. Slowing that down directly affects our economy.
    Secondly, countries like Australia also trade with the USA. So a slowdown in China that causes a slowdown in Australia would have a depressive effect on the US economy.
    Now if all this causes the US to slump back into recession, that might certainly contribute to economic and maybe political instability in the US. I can tell you the Fed isn’t happy at yet another indication of economic slowdown in the world economy.

  7. Dave Schuler says:


    Notice how lop-sided our trade with China is. And much of what China “imports” from us is actually overstated—they import subassemblies from us so that they can re-export them to us assembled.

    That component of Chinese trade will be the last thing to decline.

    About 2% of our total exports are to Australia. If that falls by, say, half (a very significant fall, highly unlikely) it would be 1% of our total exports. Exports are 14% of the U. S. economy so 1% of total exports is .14% of the U. S. economy. That’s a pretty darned small proportion of the economy.

  8. JohnMcC says:

    Social changes in China over the last 20 — 30 years make the present economic slowing particularly perilous. An immense migration from countryside to cities that has outstriped their ability to control it, is one. The over-representation of young men, many of them have no chance of finding a wife is another. The piling on of bad loans by banks and the control of interest rates on savings that have created whole cities where almost no one lives and every ‘apartment’ is owned as an investment in the hopes that the appreciation will exceed the ‘official’ savings account interest rate, is another. On top of that, there must be in the minds of many Chinese an awareness that the Communist Party has admitted failures in the past and that cannot help but have an effect on the ‘legitamacy’ of the govenment.

    It’s a lethal brew. I think China is the part of the world to watch if you are concerned about the next couple of decades in terms of war, peace and general human wellbeing on this old planet.

  9. Matt Bernius says:

    These facts, not to mention that China is still working to colonize and unite (by whatever means necessary) it’s own internal population, are why smart China expects have always felt that the “China is going to take over the world” views have been overstated.

    Add in the radical amount of environmental damage that’s been done, and you’re left with a country that is far less stable than anyone likes to admit.

    The only thing that I’d add in terms of “where to watch” is the Indian/Chinese border. More than China and Korea or China and Japan, many of the people I know who are in the know, seem to think that international problems may first really rear their heads there.

  10. stonetools says:

    @Dave Schuler:

    You may be right, and China’s economic slowdown might have little effect on the world or on the US economy. That isn’t the way to bet, though, IMO.
    And if the economic slowdown in China leads to political turmoil there- that will have a substantial effect on word financial markets. Take that to the bank.

  11. Andre Kenji says:

    Australia is not the problem. With the exception of Mexico, the whole Latin America is very dependent from China.