China registered 7.4 percent GDP growth in 2014, according to data released this morning by the National Bureau of Statistics. That is China’s slowest economic growth rate since 1990, when China’s economy was severely hampered by sanctions following the Tiananmen Square incident of 1989.
While the GDP growth figure technically misses China’s GDP growth target of 7.5 for the year, Premier Li Keqiang had been adamant that this was a “soft” target – meaning the government would be satisfied with growth slightly under or over that goal. Instead of dithering over slow growth, the Chinese government put on a public show of confidence, reminding analysts that slower growth is China’s “new normal” as it transitions to sustainable development model. “The economy is maintaining steady operation under the new normal, with positive trends of stable growth, optimized structure, enhanced quality and improved social welfare,” NBS head Ma Jiantang told the media.
Premier Li is expected to deliver that same message to the World Economic Forum in Davos later this week. A commentary in Xinhua said that “Li is expected to send a clear message of confidence in China’s economic development to boost confidence in the Chinese economy, and that of other emerging economies.” It’s the same message China’s leaders have been delivering since they rolled out their economic reform plan at the Third Plenum in fall 2013: yes, the economy is slowing, but there’s no reason to be concerned. After all, as Chinese analysts are quick to point out, most large economies would be thrilled to get anything close to 7.4 percent growth.Enjoying this article? Click here to subscribe for full access. Just $5 a month.
CCTV, in a brief analysis of the data, pointed to several factors that suggest economic reforms are taking hold. Industrial output, long a mainstay of the Chinese economy, grew by only 8.3 percent in 2014, compared to 9.7 percent in 2013. Meanwhile, China’s service sector grew by 8.1 percent. Growth in China’s service industries is considered to be a key step in transitioning China to a new consumption-based economic model. At the same time, fixed assets investment growth dropped to 15.7 percent in 2014, down from 19.6 percent in 2013, signalling a shift away from growth driven largely by government-funded infrastructure projects.
As Christopher Johnson of CSIS told The Diplomat in a recent interview, 2015 will be a crucial year for determining if Chinese leaders are willing to stomach slower growth as a necessary part of economic reform. Already, outside analysts are wondering whether slow growth numbers in 2014 will spook the Chinese government into using a stimulus package to boost growth.
Some outside analysts are questioning that China’s growth even reached the state figure of 7.4 percent, noting a depressed property market and weak lending data from China’s banks. There are worries that China may be in threat of deflation, which could spell serious trouble for the government’s plan to promote consumer spending as a new pillar for the economy. Added to that, longstanding concerns about government debt (particularly at the local level) and overcapacity remain in play.
From China’s perspective, however, the single-most important economic marker remained largely stable: employment. While an aging population poses major issues for China, including a growing strain on health care and other social services, it does provide a silver lining – fewer young people looking for (and potentially failing to find) jobs. A low unemployment rate has long been at the top of China’s priority list, as it is seen as a crucial factor to ensuring social stability within China.
For 2015, China’s GDP is projected to grow at something close to 7 percent, which is also expected to be Beijing’s target for the year. That will represent an even steeper drop in growth than the slide to 7.4 percent in 2014 from 7.7 percent in 2013.