It is less that China’s growth in 2012 was the slowest since 1999 that matters than the momentum the economy is carrying into 2013. For the year as a whole, GDP growth came in at 7.8%, but the year closed with a spurt of economic activity. Fourth-quarter growth was 7.9% compared to the same quarter a year earlier, a marked improvement over the third quarter’s 7.4% year-on-year.
The infrastructure spending that the government accelerated in the middle of the year is starting to have its intended effect in parallel with a loosening of monetary policy. Real estate accounts for 10% of GDP. Recovery in the property and construction markets easily slops over into other sectors of the economy — too easily if not controlled; the unwanted consequences of inflation, housing bubbles and bad debt remain ever present risks. Yet signs of recovery in the industrial sector are there to be seen. Industrial production grew by 10.3% in December compared to the same month a year earlier and exports are stabilizing in the face of strong headwinds caused by the economic uncertainties in the two big developed markets for China’s exporters, Europe and the U.S.
Those global economic uncertainties will continue to buffet China’s economy as 2013 unfolds. Four years on from the start of the global financial crisis, the global economy remains fragile and growth in rich countries weak. China is benefiting from the shift to ‘South-South” trade and the growing investment in developing countries’ infrastructure, which is bolstering demand in the Asia-Pacific region. But offsetting that will be the waning of the most recent stimulus and a determination among policymakers not to let inflation regain a grip.
At the same time a capital rather than consumption driven recovery is not in China’s long-term interests. The rebalancing of the economy away from its reliance on investment has had to be put on hold while the economic slowdown was reversed in the old-school fashion. The new leadership talks of waiting for growth to stabilize before picking up structural reform again. It seem likely that growth is now within the range at which it will settle for the next phase of China’s development.