China Is Slow and Unbalanced; The Economy Is Stuttering Without Much Rebalancing
July 16, 2013 Leave a comment
July 15, 2013, 6:19 a.m. ET
China Is Slow and Unbalanced
The Economy Is Stuttering Without Much Rebalancing
The payoff for slower growth in China is meant to be a more balanced economy with consumption playing a greater role. So far, though, China’s economy is stuttering without much sign of the hoped for rebalancing. Gross domestic product growth was 7.5% in the second quarter. Bank of America BAC +0.73% -Merrill Lynch forecasts growth could slow to around 7.0% in the second half of 2013. While the days of double-digit growth are long gone, the worst fears of a hard landing are also receding given Premier Li Keqiang‘s recent assertion that Beijing won’t let the economy drop beneath an unstated lower threshold.Premier Li is staking his leadership on shifting the economy away from the old investment-led model that has fueled overcapacity in some sectors—instead China wants consumption to be a bigger factor. To that end, retail sales rose 13.3% year-over-year in June, up from 12.9% in May. Industrial production and fixed-asset investment both slowed.
But the consumption picture is less rosy than June’s data suggest. For starters, the top-line retail sales figure was mostly boosted by higher prices, not more consumption. Moreover, retail-sales growth of 12.7% in the first half of 2013 is actually down from 15.2% growth for all of last year. The National Bureau of Statistics estimates that consumption accounted for 45.2% of GDP growth in the first half of 2013, compared with 51.8% in 2012. In other words, the economy’s not only slowing, it is also getting more off-kilter.
There are good reasons for this. In particular, household-income growth is slowing along with the broader economy. Urban disposable income in China rose 6.5% in the first half, down from 9.6% in 2012.
Beijing’s efforts to get China spending will take much more time. Public pensions and health-insurance benefits remain too low to persuade people to reduce rainy-day savings. The government has promised to increase returns on bank deposits and loosen restrictions on the capacity of migrant workers to access social welfare in cities, but so far, this is mostly policy hot air rather than concrete action.
Meanwhile, China has now recorded five straight quarters of growth below the 8% level the country’s previous leaders set as their unofficial minimum acceptable growth rate for the economy. So far, the new leadership is holding firm on its plan to let growth slow if it benefits the country in the long run. But the shift to a more consumption-led economy seems some way off.
About bambooinnovator
Bamboo Innovator 