China dodges 14-year lows but cooldown is ‘inevitable’

The chance that the world’s second-largest economy may decelerate in coming months was underscored yesterday by data that showed growth in investment and factory output flagged in the final months of last year.

Waning momentum capped China’s annual economic growth at a six-month low of 7.7 per cent in the October-December quarter, a slowdown some analysts say may deepen this year as China endures the short-term pain of revamping its growth model for the long-term good.

Full-year growth in 2013 was 7.7 per cent, steady from 2012 and just slightly above market expectations for a 7.6 per cent expansion, which would have been the slowest since 1999.

“It’s like a Chinese medicine,” said Lu Zhengwei, chief economist at Industrial Bank in Shanghai. “If you don’t take it, you may have problems in future. But if you take it now, you cannot expect to regain your youth tomorrow.”

After 30 years of sizzling double-digit economic growth that lifted many millions of Chinese out of poverty but also devastated the environment, China wants to change tack by embracing sustainable and higher-quality development instead.

That means reducing government intervention to allow financial markets to have a bigger say in allocating resources, and promoting domestic consumption at the expense of investment and exports.

Yesterday’s data from the National Bureau of Statistics showed China’s £5.7 trillion economy is still very much dependent on investment for growth.

Capital formation accounted for 54 per cent of China’s economic growth last year, exceeding the 50 per cent share taken up by consumption.

Net exports, on the other hand, detracted 4.4 per cent from overall growth.

“I don’t see any evidence of a rebalancing last year,” said Tim Condon, an economist at ING.

Yet there are signs Beijing wants to rein in investment.

For the whole of 2013, China’s fixed-asset investment climbed 19.6 per cent, the smallest increase in at least 10 years.

Ambitious investment by local Chinese governments that have racked up some $3 trillion worth of debt has been at the forefront of China’s investment drive in recent years, a trend that must be checked, said Ma Jiantang, head of China’s statistics bureau.