BEIJING: China’s economy failed to pick up speed last year despite a promising mid-year rebound, an AFP survey shows, staying mired at its slowest growth rate in more than a decade.
The outlook for 2014 is for renewed deceleration in the world’s second-biggest economy as the government cracks down on local debt problems and “shadow banking” – non-traditional lending practices seen as potential threats to the financial system.
In a poll of 14 economists, the median forecast for gross domestic product (GDP) growth in 2013 was 7.7 percent, matching the actual result for 2012, which was the country’s worst performance since 1999.
The National Bureau of Statistics in Beijing is scheduled to announce China’s GDP results on Monday for the fourth quarter of last year and the full year.
The economy entered 2013 with optimism for faster expansion, but hopes were dashed as growth tanked for two straight quarters before finally picking up to reach 7.8 percent in the July-to-September period.
Performance in the final three months of the year was mixed, however, with a general view emerging that the pick-up was fading.
The median forecast for fourth quarter growth in the AFP survey was 7.6 percent, while it was seen as slowing to 7.5 percent for full year 2014.
Hong Kong-based Societe Generale economist Yao Wei said the government’s focus this year will be on “de-leveraging” – referring to efforts to tackle credit growth.
“It is still introducing more new policies targeting shadow banking, local government financing vehicles and so on, which will definitely lead to rather big downside pressures on the economy,” Yao told AFP.
China on a slowing trend
China’s economy is widely seen as facing slower expansion in the years ahead as its leaders say they are committed to transforming the country’s growth model to one where consumers and other private actors play the leading role, rather than huge and often wasteful state investment.
Within the past decade Chinese growth was regularly in double digits, but it has been on a slowing trend and Monday’s statistics are set to show it completing three consecutive years in single figures for the first time since 2002.
Besides shifting the growth emphasis, China’s leaders are also concerned about the country’s financial system including shadow banking and government debt, particularly at the local level.
China late last month announced the results of a long-awaited debt audit, revealing that liabilities carried by local governments had ballooned to 17.9 trillion yuan ($2.95 trillion) as of the end of June, up 67 percent from the end of 2010.
Local authorities have long used debt to fuel growth in their regions, often by pursuing projects that are not economically viable or sustainable.
While few see the problem as a systemic threat, the debt issue is considered to be a serious potential drag on China’s economy unless steps are taken to rein it in.
Shadow banking practices are seen as a culprit in fuelling credit. Shadow banking refers to lending sometimes issued by legitimate banks and financial institutions, as well as private deals between individuals or companies, that have arisen as a way of getting around strict banking rules.
Analysts say that such non-transparent, less regulated credit can stoke asset bubbles and threaten stability.
The financial system experienced two cash shortages last year, in part because authorities were eager to impose tighter discipline over banks, though how much they can do is open to question.
“China’s monetary policy is gradually losing its efficacy,” said Liu Li-Gang, chief economist for Greater China at ANZ bank.
The 2013 performance and 2014 outlook come after the ruling Communist Party in November pledged to deepen economic reforms, vowing to allow the market to “play a decisive role in allocating resources”, a change from earlier wording that called its part merely “basic”.
“The government looks to be more determined than three to four years ago to reform,” said Zhang Zhiwei, economist at Nomura International, though he said the economy’s “worsening momentum” poses a challenge.
Though the government clearly wants growth to become more sustainable, it is unlikely to tolerate too sharp a drop as creating new jobs is the key to fulfilling the party’s promise of increasing prosperity, and maintaining social stability.
ANZ bank’s Liu described the government’s reform effort for this year as “arduous.”
“Too much emphasis on GDP growth will likely delay many reform policies and in that case it could be fatal to China’s sustainable development and the credibility of the government,” he said.