AN ECONOMY EXPANDING at an annual rate of 7%-7.5% would be a cause for celebration in many economies right now. In China, it is more likely to be a cause of handwringing than bell ringing.
The annual GDP figure for 2014 is due to be announced on Tuesday. The consensus view of economists whose views get polled for these sorts of things is that fourth-quarter growth will come in at 7.2%, which would put the number for the year at 7.4%.
That would be less than the official target of 7.5% although that has been turned into ‘about 7.5%’ over the course of the past year as the economy has slowed. Anything above 7% would be close enough to count as ‘about’. It is inconceivable, to this Bystander at least, that government statisticians won’t deliver a number that doesn’t have a seven to the left of the decimal point.
The sky probably won’t fall when China’s annual GDP growth falls below 7%, as it one day will. The sky didn’t fall when growth fell below 8%, similarly said at the time to be the rate below which only chaos could ensue.
However, to look at the likely performance of the economy in 2014 and only see one of the two slowest growing years of the past quarter of a century, a period that for decades routinely saw double-digit annual growth, is more than looking at the glass half empty. It is looking at the wrong glass.
The pace of growth that China has enjoyed for nigh on 30 years is no longer sustainable. That is partly a consequence of the law of large numbers. Even at current growth rates, China’s economy expanded by an estimated $680 billion last year, which is more than the entirety or Africa’s largest economy, Nigeria, or a European economy like Switzerland.
To move to its next phase of economic development, China’s economy needs to rebalance towards domestic-demand driven growth and away from investment- and export-led growth. A more moderate pace of growth is inevitable, as it was for Japan and South Korea at similar points in their economic trajectories. President Xi Jinxing has repeatedly signaled that. Only last week Prime Minister Li Keqiang called during a highly symbolic ‘Southern Tour’ for growth “within a proper range”.
The leaders’ only concern is that the economy does not slow too rapidly in case job losses or other economic or social dislocations undermine, first support for the measures needed to rebalance, and second, but far more importantly the legitimacy of the Party’s claim to monopoly rule which is based on delivering a rising standard of living. McKinsey, the international management consultancy, forecasts that salary rises this year will be the lowest in a decade. Nor can China’s burgeoning middle-class look to flip real estate now the property market bubble has been deflated.
Authorities took a series of targeted measures to stimulate the economy across the course of last year — a surprise interest rate cut, lower reserve requirements and looser loan restrictions. Such measures have continued into this, such as with the latest wad of loan money being made available to banks to lend to rural and small businesses and the ‘direction’ given to the private sector to invest in infrastructure projects.
The accelerated timetables being given to such projects means capital spending, a reported 7 trillion yuan ($1.1 billion) of projects approved in 2014, is greater than the 4 trillion yuan of stimulus monies that were thrown at the economy in the wake of the 2008 global financial crisis. That underlines the continuing struggle the government has in maintaining a balance between its long-term goals of structural economic reform, its medium-term need for fiscal discipline (there is still a shadow banking and local government debt bomb ticking, if less loudly than before) and its short-term imperative to keep the economy – and Party rule – humming along.
The number to the right of the decimal point that we will learn on Tuesday is relatively immaterial to all that.