China growth loses steam: seven takeaways

Will slackening demand from US and Europe, its biggest exports markets, force the country to look inward and boost domestic demand?

 

China’s economic growth unexpectedly lost momentum in the first quarter as the annual rate of growth eased back to 7.7%  from the 7.9% pace set in the final quarter of last year, fueling concern about the strength of its shaky recovery. Today’s data add to concerns the global recovery is struggling, with the International Monetary Fund set to lower its forecast for US growth.

China economic growth, other data disappoint: here’s what it means

1) The growth setback may enhance challenges for Communist Party leaders who took power over the past six months. They are trying to avoid job losses while they pursue more self-sustaining growth based on domestic consumption instead of exports and investment.

 

2)  Over the past few years, the world’s second-biggest economy has relied heavily on its exports and investment spending to maintain a strong pace of growth. However, as economic growth in its key markets such as the US and Europe has slowed, and its exports have weakened, there have been calls for China to rebalance its economy. Beijing has acknowledged this and has indicated that it wants to raise domestic demand to reduce its dependence on exports and achieve more sustainable growth.

 

3)  A slowdown in Chinese growth and demand for goods ranging from iron ore to factory technology and consumer goods could send out ripples in the global economy.

 

4) The weak retail sales were somewhat due to Xi’s crackdown on conspicuous consumption, which he launched late last year amid rising popular anger about corruption in government and the deepening of the country’s wealth gap.

5)  China has taken several steps over the past few months to spur growth. The central bank has cut interest rates twice since June to reduce borrowing costs for businesses and consumers and increase lending. Analysts are of the view that China was likely to continue to use easy monetary policies as a tool to sustain growth.

 

6)  Media reports say the housing market is also heating up, leading some analysts to worry about the development -- and possible deflation -- of a housing bubble. China's central government was already stepping up efforts to cool prices, and Beijing has directed local governments to institute control measures of their own. Real estate investment was worth 11% of GDP Q1 and directly impacts around 40 other business sectors.

7) The rapid rise of a new consumer class in China is a factor that keeps investors broadly optimistic about the longer-term future of the economy, provided policymakers can rebalance the drivers of growth away from the investment spending and exports to which it is currently tilted, according to Reuters.

 

While the economy has had a smooth start to the year, China still faces a complex situation due to instability and uncertainty domestically and abroad, Premier Li said in comments published on Sunday by the official Xinhua News Agency.