China’s Economy Continues Its Intended Slowdown

THE SLOWING OF China’s economy alarms financial markets more than it does China’s policymakers. First-quarter GDP growth, at 7.4%, represented the second slowest three months of growth since the global financial crisis. But the economy is on a long-term deceleration as authorities seek to rebalance it from investment and export-led growth to domestic consumption. Growth, remember, hasn’t topped 8% since the first quarter of 2012.

Although the official growth target for the year is 7.5%, China’s leaders are lowering public expectations about the need for that to be hit exactly. Prime Minister Li Keqiang’s comments at the Boao Forum last week about “about 7.5%” growth being the target were just the latest in a series softening the number.

How much softer is permissible will depend on unemployment staying sufficiently low. That is an indicator being carefully monitored as it has political as well as economic ramifications. Policymakers are also watching closely for signs of worsening trouble in the banking and property sectors.

In the first quarter, fixed-asset investment was up 17.6% year-on-year, a tad down on the 17.9% growth in the first two months of the year. Retail sales grew 12.2% year on year in March, exceeding January-February’s 11.8%, though the first two months of the year, which contained New Year, will have been hit by the curbs on lavish displays of official consumption as part of the anti corruption drive. The statistics bureau is suggesting growth in overall consumption was likely down in the first quarter.

The leadership looks committed to slowing the economy to a long-term sustainable growth rate, and, if to a lesser extent, to the reforms necessary to get it there. It can always fall back on accelerating infrastructure investment later this year if growth softens too much too fast.

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