China’s economy grew at its slowest pace in 13 years in 2012, though a year-end spurt supported by infrastructure spending and a jump in trade signalled the foundation for the stable growth path Beijing says is vital for economic reform may be in sight.
Evidence of a burgeoning recovery in exports, stronger than expected industrial output and retail sales, together with robust fixed asset investment, all indicated that Beijing’s pro-growth policy mix has gained sufficient traction to underpin a revival without yet igniting inflationary risks.
Year-on-year growth of 7.9 per cent in the fourth quarter beat a consensus forecast of 7.8 per cent in a Reuters poll and snapped a streak of seven consecutive quarters of slowdown.
The performance was at the upper end of the seven to eight per cent rate economists reckon is needed to deliver on reforms essential to China’s long-term development after three decades of red-hot, double-digit growth.
Full year growth of 7.8 per cent was also just ahead of the poll’s 7.7 per cent call and, although the weakest since 1999, comfortably ahead of the Government’s 7.5 per cent target, which just months ago seemed to some economists to be in jeopardy.
“It’s kind of like a golden spot – stronger growth, but not strong enough to trigger a lot more inflationary concern. That’s perfect for equity markets,” said Dariusz Kowalczyk, Asia ex-Japan senior economist and strategist at Credit Agricole CIB in Hong Kong.
“What everybody wants is growth that’s strong enough to give us peace of mind that revenues will increase and there is no hard landing risk, but not excessive, not strong enough to trigger inflation. And this is what I think we are getting. I’m bullish on China still.”
Market reaction was generally upbeat, with Asian shares advancing and platinum and palladium following suit, while oil traders took the opportunity of data confirming the recovery to book profits after two sessions of steep rises.
China’s new leaders must stabilise the economy this year to keep employment high while avoiding a surge in housing prices and inflation that could undermine reforms needed to overhaul the country’s export-oriented growth model.
Without stability, incoming President Xi Jinping and Premier Li Keqiang, who are set to be confirmed in March, have no chance of delivering a slew of reforms they say are needed to tackle a host of financial, industrial and income imbalances that threaten China‘s future.
China’s leaders say rebalancing the economy to consumption and away from the investment and export model followed for the last 30 years holds the key to tackling inequality, but detailed data yesterday underlined the scale of that task.
While consumption made the biggest contribution to growth in 2012, with a 51.8 per cent share, the fourth quarter of the year marked the third consecutive quarter of decline.
The fall has been driven by the Government’s focus on using investment spending as the main expedient to underpin an economy still levered to external demand.
Exports generate about a third of economic activity and sinking demand from foreign customers in struggling European Union and United States economies dragged on growth in 2012. Net exports made a negative 2.2 per cent contribution, data showed.