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.
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.
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.