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China’s Growth Slows in 1Q: Only the Beginning?

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Pacific Money

China’s Growth Slows in 1Q: Only the Beginning?

What do the latest economic numbers coming out Beijing mean?

The Chinese economy grew 7.7 percent year-on-year in the 1st quarter of 2013, a decline from the 7.9 percent growth rate achieved in the 4th quarter of last year and lower than the 8 percent growth rate that many economists predicted for the 1Q. The 7.7 percent growth rate was still above the 7.5 percent target that outgoing Premier Wen Jiabao set as the target for 2013.

China’s economy grew by 7.8 percent in 2012.

The Chinese government and many economists sought to downplay concern over the figures, blaming the low demand abroad and economic restructuring at home, and noting that Beijing is more interested in achieving high quality growth.

“The data has continued a stabilizing growth trend that took shape late last year, showing that the new government does not put pursuing growth as its number-one task,” Xinhua News Agency quoted, Wang Jun, an economist at the China Center for International Economic Exchanges, that operates under the guidance of the National Development and Reform Commission, as saying.

The picture was not all negative, however. As Eurasia Group, a global risk research and consulting firm, pointed out, China’s trade numbers were relatively favorable with exports at US$508.9 billion, and imports at US$465.8 billion, yearly increases of 18.4 percent 8.4 percent respectively.

Other numbers were more troubling, however. Retail sales, for instance, grew by 12.4 percent, a decline from the 14.9 percent growth rate registered during the last quarter of 2012. Most analysts attributed this decline to the new leadership’s campaign to rein in the worst excesses of government and military officials. This viewpoint was supported by the data, which showed that specific retail areas like restaurants and luxury cars were particularly hard hit during the 1Q.

Although there is some hope that domestic consumption will grow in line with the government’s new emphasis on this economic driver, there are also good reasons to believe that the economic slowdown will continue and likely get worse throughout the year. For one thing, these disappointing numbers came despite the economy being pumped with liquidity in March, when net new loans totaled Rmb1.06tn (US$171.2 billion).

A sustained sizeable fiscal stimulus is unlikely to be in the cards however, at least if Premier Li is to be believed. Over the weekend, for example, Premier Li told a seminar that “if interim measures have to be carried out, they should not set up barriers for promoting market-oriented reform and development in the future.”

In other words, if there is a fiscal stimulus in 2013, it is likely to be small and short-lived, given continued concern over the long-term impact of the massive fiscal stimulus the Chinese government injected into the economy in response to the 2008 financial crisis.

Li Ruoyu, an economist with the State Information Center, went further in expressing this viewpoint when comparing short-term stimulus aimed at reviving an 8 percent to “drinking poison to quench a thirst.”

Zachary Keck serves as assistant editor for The Diplomat.