(Revised) China GDP Grows Even Slowers

China’s gross domestic product growth in the first quarter decreased to 7.4% that is the slowest level in 18 months. The continuous economic slowdown of the world’s second-largest economy really makes people worry as China plays a more and more important role in the global market.

Since about three years ago the government started to emphasis the development of financial market and innovation of technology instead of relying on export and governmental investment. Therefore, some economists treated the slowdown of China’s economy as an inevitable sign during the transition. “It’s a move in the right direction,” said ING economist Tim Condon. He thinks 2013 was not a good year for restructuring in China, but the situation could be better in2014. However, China’s GDP growth has fallen to 7.4%, compared with the double-digit growth few years ago. Should we worry about the further slowdown of China’s economy?

There are signs of slowdown in many areas. Due to the control over housing market, the fixed-asset investment that covers machinery, land and buildings slightly increased to 17.6% in the first quarter, which is less than the 17.9% expectation. The growth of retail sales struggled to keep the same level as before. However, the anti-extravagance campaign introduced by the government could seriously affected officials’ consumption of luxury goods such as cars, yachts and tourism. Moreover, bad news also came from its financial market. The local government debt level has become an increasing danger. Defaults also happened on trust loans and corporate bonds since the start of 2014. As more and more problems exposed, Chinese government should really take some measure to stop the trend of slowdown before it is too late.

In the long term the aging population will also be a threat the economy. Right now China still has millions of people trying to get into big cities from rural areas and keep a relative low labor cost. However, the society has shown a very sign that the graying dependents are ballooning because of decades of One-Child Policy. Once the country gets older, not only the economy will lose its vitality but also the social culture would change and seek safety and stability instead of risk and acquire.

Premier Li Keqiang said that China needs to keep economy growing at a speed of 7.2% in order to provide enough employment. Before the figure reaches the bottom line, the government announced a plan of economic stimulus in April. It includes the construction of railroad and rural area.  Other measures such as tax reduce and governmental investment in the market could also be expected as the following steps of the government. On the other hand, the market gave a positive response to the measures of government. The stock markets in Shanghai and Hong Kong went up after the announcement.

Therefore, the economics reform could no longer be an excuse for the slowdown as the GDP growth has almost reached the bottom line. It is time for the government to take actions to activate the economy and labor market as well as recover the growth to a safe level.

3 thoughts on “(Revised) China GDP Grows Even Slowers

  1. zhuwei

    It is troubling to see the slowing down. What do you think that causes this? Could it be that we are just hitting the bottom of an economic cycle? Or might there be some exogenous reasons?

  2. dslavin

    I would agree with the view of the economists you mentioned in the beginning of your post. We can’t expect China to keep experiencing double digit growth forever, but I don’t think the slowdown is much of a concern. China’s demand for natural resources is growing and there is still plenty of infrastructure needed to be built across the country. I predict the growth rate will stabilize just above 7 percent for the next few years and then drop down again once the Chinese economy becomes even more developed.

  3. viczhou

    I think China should focus more on the quality rather than the quantity of economic growth, so the slowdown might a good sign for structure reform. Plus, the authorities should deepen financial reform to benefit the general public for domestic consumption.

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