China’s Economy Slowing But Not Faltering Enough To Force Change

China’s economy continued to slow in the fourth quarter of last year, though not by as much as many economists, if not us, had expected. Gross domestic product rose by 8.9% in October to December, compared to the same period a year earlier, the National Bureau of Statistics announced. The fourth quarter growth was the slowest for 10 quarters, and the first time the growth rate had fallen below 9% since mid-2009. Full-year GDP growth for 2011 came in at 9.2%, down from 2010’s 10.4%. The cooling of the domestic property market and the moderation of demand in China’s Western export markets have taken their toll on expansion, the one intended, the other not.

Policymakers have been pumping credit into the economy since late last year. That is likely to continue–monetary easing by way of a backdoor stimulus. The questions now are how much will be needed to keep a hard landing at bay, and how much can be risked without re-stoking inflation, which, while down from July’s 6.5% peak, is still ahead of the government’s target of 4% for the year, coming in at 5.4% for 2011. The property bubble has been deflated not punctured and still rising food prices remain a concern, the latter being both politically sensitive and the part of the consumer price index least responsive to monetary policy. Ma Jiantang, head of the statistics bureau, warns that inflation could easily reverse this year its fall in the second half of last.

Given that, and the uncertain outlook for the global economy, particularly its European component, Beijing’s policymakers will have to walk a fine line, a task made more difficult politically by the leadership transition now underway. It is also likely to make policymakers and politicians alike more nervous of tackling the changes needed to rebalance the economy in the longer term, away from export- and investment-led growth and towards domestic consumption. If anything, the higher than expected fourth-quarter GDP numbers bolsters the status quo. It will reinforce the view of the economic conservatives that it is better not to mess with the tried-and-tested mechanism of stimulating the economy via new loans from large state-owned banks to equally politically reliable large state-owned enterprises, as it appears to be forestalling the immediate danger at hand.