China slows – and rebalances
China's may be slowing, but the transition to a more consumer-based economy looks to be on track.
China announced that GDP growth slowed marginally to an annual pace of 6.8% in the fourth quarter of 2015, taking the total for the whole year to 6.9%, the slowest pace since 1990. Given the economy's exponential growth in recent years, however, it still added more to the global economy last year around the equivalent of a large developing country than when it expanded by 14% in 2007.
It seems China is "experiencing a steady but manageable slowdown", said Peter Thal Larsen on BreakingViews.com. The usual growth sectors, manufacturing and investment, are slowing, and "consumers are picking up the slack". The transition to a more consumer-orientated economy looks on track, agreed the FT. Consumer spending contributed two-thirds of GDP growth last year, the biggest share since 2001. The overall services sector, moreover, accounted for 50.5% of output growth. That's 10% more than manufacturing.
Nonetheless, there are "faultlines" to worry about, continued the FT, notably "ballooning corporate and household debt". The key concern now is that high debts, falling corporate profits and the sagging property market could jeopardise consumption. Debt has soared in recent years, but the "state-controlled and relatively closed financial system should give planners more scope" to prevent a Lehman-style meltdown, as Peter Thal Larsen pointed out. Government debt, moreover, is still low.
In any case, the government can put off a reckoning by restimulating the economy, which is exactly what it has been doing. According to Capital Economics, which has devised a proxy measure of Chinese growth to compensate for deficiencies in the official data, growth has begun to edge up. This is due to recent stimuli, including higher government spending and interest-rate cuts. Construction and industrial growth have steadied after falling for five quarters, for instance, and the latest trade figures reveal "healthy" growth in commodity imports. Whatever happens to China a few years down the track, current jitters over a hard landing look overblown.