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.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

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.

Advertisement

Recommended

Visit/519858/how-long-can-the-good-times-roll
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Visit/517688/the-british-equity-market-is-shrinking
Stockmarkets

The British equity market is shrinking

British startups are abandoning public stockmarkets and turning to deep-pocketed Silicon Valley venture capitalists for their investment needs.
8 Nov 2019
Visit/511212/reasons-for-investors-to-be-bearish-but-stick-with-the-stockmarket-bulls
Stockmarkets

There are lots of reasons to be bearish – but you should stick with the bulls

There are plenty of reasons to be gloomy about the stockmarkets. But the trend remains up, says Dominic Frisby. And you don’t want to bet against the …
17 Jul 2019
Visit/510684/good-news-on-jobs-scares-stockmarkets
Economy

Good news on jobs scares US stockmarkets

June brought the best monthly US jobs growth of the year, but stockmarkets were not best pleased.
11 Jul 2019

Most Popular

Visit/investments/property/601081/three-things-matter-for-the-uk-housing-market-now-and
Property

Three things matter for the UK housing market now – and “location” isn’t one of them

The UK housing market is frozen. And when it does eventually thaw out, the traditional factors that drive prices will no longer apply. The day of reck…
1 Apr 2020
Visit/investments/property/601065/what-does-the-coronavirus-crisis-mean-for-uk-house-prices
Property

What does the coronavirus crisis mean for UK house prices?

With the whole country in lockdown, the UK property market is closed for business. John Stepek looks at what that means for UK house prices, housebuil…
27 Mar 2020
Visit/investments/commodities/energy/oil/601107/oil-shoots-higher-have-we-seen-the-bottom-for-the-big-oil
Oil

Oil shoots higher – have we seen the bottom for the big oil companies?

Just a few days ago everyone was worried about negative oil prices. Now, the market has turned upwards. John Stepek explains what’s behind the rise an…
3 Apr 2020
Visit/economy/uk-economy/601079/how-the-coronavirus-pandemic-is-killing-cash
UK Economy

How the coronavirus pandemic is killing cash

Covid-19 is making a huge difference to the way we live, work and do business. One of its less obvious effects, says Merryn Somerset Webb, is to accel…
31 Mar 2020