China has been looking to reduce its reliance on investment-led growth
China’s economy, the world’s second-largest, grew at its slowest pace in 14 years in 2013, latest figures show.
Its gross domestic product (GDP) expanded 7.7% from a year ago, the slowest pace of growth since 1999.
The growth rate was better than the government’s target of 7.5%. The pace of expansion was also the same as 2012.
The data highlights the challenge policymakers face in sustaining China’s high growth rate as they look to rebalance the economy.
Further slowdown?
Many analysts expect the country’s growth rate to slow as it takes steps to move away from an investment-led growth model to one driven by domestic consumption.
Data released on Monday showed that China’s growth rate slowed in the October-to-December quarter.
The economy expanded at an annual rate of 7.7% during the period, compared with 7.8% in the previous three months.
“The figure showed China’s economy had touched the bottom in the third quarter of 2013 and then stabilised in the end of last year,” said Li Huiyong, an economist with Shenyin & Wanguo Securities in Shanghai.
“We expect the trend will continue in 2014 as the policymakers [are] determined to push forward the reforms to maintain stable economic growth.
“We maintain our 2014 GDP growth forecast of 7.5% as we still need to be on guard for the risks from debt problems in the economy.”
Debt concerns
A government-led investment boom has been one of the key drivers of China’s growth in recent years.
Chinese banks, especially the big four state-owned lenders, lent record sums of money in the years after the global financial crisis in an attempt to sustain the country’s high growth rate.
However, there have been concerns that part of that money has gone towards unproductive investments and that banks may not be able to recover those loans.
The fear among many is that a jump in non-performing loans would not only hurt the country’s banking sector, but also have a big impact on its overall growth.
There are also growing worries over the growth of shadow banking – lending by non-banking companies, in the country.
Many critics have warned that shadow banking makes credit less transparent and poses a major risk to China’s economic growth.
Earlier this month, various media reports indicated that China had drafted rules calling for greater supervision and monitoring of the shadow banks.
Beijing also told major banks to publish data on 12 key indicators, including off balance sheet assets, to enhance their transparency.
Shen Jianguang, chief China economist at Mizuho Securities in Hong Kong, said “the government moves to curb shadow banking and local government debt will cap the growth of investment”.
Many analysts have said that while policymakers needed to curb lending growth to address these concerns, such a move was likely to impact China’s economic growth.
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