China's 7.4% growth last year falls short of target

China's 7.4% growth last year falls short of target

China missed its growth target for the first time since 1998 with a 7.4 per cent expansion last year, signalling greater challenges in the next 12 months that might see Beijing unveil even more stimulus measures to keep growth steady.

Official data released yesterday showed that the 2014 gross domestic product (GDP) was lower than the 7.7 per cent in 2013 and fell just short of the target of "about 7.5 per cent".

The Chinese authorities have called slower growth the "new normal" for the world's No. 2 economy.

But experts say that with an upbeat labour market and healthy wage growth, the missed target is not a huge cause for concern.

It signals instead Beijing's tolerance for slower growth as it seeks to push its export- and investment-heavy economy towards better quality growth.

"We suspect policymakers allowed growth to slow to the lower end of their target range in order to encourage economic rebalancing to take place at a faster pace," said Capital Economics' China economist Julian Evans-Pritchard.

"The fact that policymakers didn't roll out aggressive stimulus just in order to hit the 7.5 per cent mark is a positive development," he added.

Said Dr Wang Xiaolu, deputy director of the National Economic Research Institute in Beijing: "The government's annual GDP targets are actually unnecessary. The more important factors to look at are income, consumption and employment data and all these look healthy." Yesterday's data also showed that while slowing investment continued to put downward pressure on growth, this has been offset by a fourth-quarter pickup in consumption and service. Retail sales growth similarly rose last month.

But with a weakening property market, industrial overcapacity and rising deflationary pressures such as from falling oil prices, experts say more aggressive monetary easing and further growth- supporting reforms might be deployed to anchor domestic demand in the coming months.

Premier Li Keqiang on Monday urged local officials to act quickly in response to significant economic pressures.

Beijing-based Gavekal Dragonomics economist Chen Long said there may be up to two interest rate cuts this year while the reserve requirement ratio - the amount of reserves banks must set aside - is also likely to be lowered.

HSBC's chief China economist Qu Hongbin agreed that more of such easing is needed to prevent a sharp slowdown.

"The property market is still slowing amid tight funding conditions and cooling investment... it will likely take us until mid-2015 for property to become a less negative drag," he pointed out. "Meanwhile, all measures of inflation are now at multi-year lows, a problem recently exacerbated by declining commodity prices."

But Dr Wang cautioned against expansionary policies, saying they are at odds with weaning the economy off debt-fuelled growth and could cause bubbles, such as in the stock market, instead.

China's central bank cut interest rates for the first time in two years last November as the government accelerated the approval of infrastructure projects to boost the economy.

Still, growth is likely to slow to around 7 per cent this year, although longer-term concerns are also on the charts.

Said Dr Chen: "The shrinking labour force that China is facing is expected to continue into the next decade and is an overhang that China's economy must also contend with."

esthert@sph.com.sg


This article was first published on Jan 21, 2015.
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