China enters era of slower growth

By Jamil Anderlini in Beijing

China has entered an era of slower growth and must adjust to the end of three decades of double-digit annual economic expansion, the government warned on Monday.

Economic growth unexpectedly slowed to 7.7 per cent in the first quarter compared with a year ago, according to the National Bureau of Statistics. “After 30 years of high-speed economic growth, potential productivity in China has dropped,” said Shen Laiyun, bureau spokesman. “During the economic transformation period of other countries, such as Germany, Japan and South Korea, their overall economic growth rates also fell to a lower level.”

Significantly slower Chinese growth will affect economies across the world and hurt exporters of raw materials that have become reliant on surging Chinese demand over the past decade.

“For commodity exporters in places like Australia, Latin America and Africa, much slower Chinese growth is very bad news,” said Frederic Neumann, co-head of Asian economic research at HSBC. “A lot of supply is coming on stream that was predicated on the idea that China would grow faster than 9 per cent forever.”

Chinese officials have played down the significance of lower growth in recent weeks, saying the slowdown is partly due to efforts to rebalance the economy away from investment and exports towards domestic consumption.

“I don’t think China will be able to sustain a super-high or ultra-high speed of growth and that is not what we want,” said Xi Jinping, president. “China’s model of development is not sustainable, so it is imperative for us to speed up the transformation of the growth model.”

Stock markets across Asia fell after the Chinese GDP figure was released on Monday morning. Currencies of countries that export heavily to China also tumbled. The Australian dollar dropped 0.6 per cent, while the New Zealand dollar shed 1 per cent against its US counterpart. New Zealand is a key exporter to China of agricultural and forestry goods such as lamb, dairy products and timber.

Weaker growth potential will also force companies operating in China to reconsider their business models, which often rely on high levels of debt and investment.

Most analysts had expected the world’s second largest economy to grow by about 8 per cent in the first quarter after it rebounded in the middle of last year, growing 7.9 per cent in the fourth quarter. 

But a weak industrial sector and disappointing retail sales dragged down growth even as China saw a surge in credit, suggesting monetary stimulus is not having as much impact as before.

Echoing Beijing’s warning, the World Bank on Monday said Chinese growth would slow to “between 6 and 7 per cent by the end of the decade”, according to Bert Hofman, its chief Asia economist. In its half-yearly regional report, the bank said the Chinese economy would expand 8.3 per cent this year, but most analysts believe that forecast is optimistic.

Mr Sheng said he expected China to meet the annual growth target of 7.5 per cent set by China’s new leaders earlier this year. If the economy grew at that rate or less in 2013, it would mark the slowest annual growth since 1990.

Beijing appears to be quite relaxed about slower growth, which has not triggered higher unemployment. More than 3m new jobs were created in urban areas in the first quarter, according to government figures. Mr Sheng said China’s “employment figures stand in sharp contrast to those in the US and Europe”.

Consumer inflation remains relatively subdued, with an increase of 2.4 per cent in the first quarter from a year earlier. 

Additional reporting by Josh Noble

Copyright The Financial Times Limited 2013.