Chinese Growth Dynamics

World’s second largest economy grew by 7.7 per cent for the fourth quarter of 2013, according to the National Bureau of Statistics. Although it was able to beat the expectation of 7.6 per cent that many economists were predicting, it is below 7.8 per cent posted in the previous quarter.  For the year 2013 the Chinese economy grew by 7.7 per cent, the lowest annual growth in last 14 years.

Many economist and market participants believe that after growing in double digits for most part of last 30 years, Chinese economy is likely to witness a muted economic growth going forward. One of the reasons for lower growth is the recent shift in the Chinese policy towards the domestic consumption rather than export and investments, which was the growth driver of the economy in last thirty years. According to a report by Organisation of Economic Co-operation and Development (OECD) on economic outlook for Southeast Asia, ‘China’s real GDP growth is expected to moderate around 7.7 per cent in 2014-18 (compared to 10.5 per cent during 2000 and 2007), as the country  is rebalancing its growth model towards growth driven by domestic consumption.’

The impact of the shift in the Chinese policy is clearly reflected in the micro analysis of the factors that helped the Chinese economy to grow. Fixed asset investment has grown at 19.6 per cent for 2013 on yearly basis and this is 1.1 per cent below 2012 level. Private investment also cooled off and is lower by 1.3 per cent from 2012 level. Exports recorded growth of 7.9 per cent on yearly basis, missing the 8 per cent target set by government.

The shift of China from a producer driven economy to a consumer driven economy means lot to the global economy. It will help in stabalising the global economy from current state of imbalance. Therefore the transformation of China to a demand led economy, from an export led economy will help in bringing the balance in the global economy and will drive it in long term. 

Such transformation will also help India to bridge the rising trade deficit with China, which has hit a record level of USD 31.4 billion in 2013. Out to total trade with China, India’s export to China was a mere USD 17.03 billion, a fall of 9.4 per cent year ago. According to a report by the RBI, India has a huge export potential with China, especially in the field of vegetable and mineral products. Moreover, there are various areas and regions where India and China can compete with each other in export market. Therefore, we believe that such shaping-up of the Chinese economy is good for the global economic growth and Indian exports and trade balance.