Workers at a construction site in Chengdu. (Photo/Xinhua)
China announced first-quarter economic growth of 7.7% on April 15, marking the fourth straight quarter of growth below 8%. Many have attributed the slowdown to the stagnant global economy and Beijing's monetary policies. Yet the possibility of future growth remains cloudy the further into the future analysts look.
First-quarter growth of consumer goods slowed to just 12.4%, down from 14.8% and 14.9% growth in the previous two quarters, likely affected by the government's frugality policy that has cooled restaurant and retail revenue.
Urban residents' disposable income grew by 6.7%, lower than GDP growth, while rural residents' disposable income grew 9.3%. Rural residents' nominal cash income reached 2,871 yuan (US$465) in the first quarter, far below urban residents' 7,427 yuan (US$1,200).
Capital formation contributed 2.3 percentage points to GDP growth. First-quarter fixed-asset investment grew 20.9%, 0.3% higher than last year. First-quarter M2 growth reached 15.7% with currency outstanding at 103 trillion yuan (US$17 trillion). Loans grew 11.8% to 2.75 trillion yuan (US$445 billion), reflecting the relaxed credit policy since late 2012 and the accelerated approvals of infrastructure projects. The growth came amid worries over property bubbles and the rising debt levels of local governments.
Trade surplus contributed 14.2% of GDP. First-quarter exports rose 18.4%, imports grew 8.3%, resulting in a trade surplus of US$43.5 billion, up sharply from a surplus of US$270 million in the same quarter a year earlier, but down from a surplus of US$68.57 billion, US$79.13 billion and US$83.01 billion, respectively, in the last three quarters of 2012, indicating a downward trend.
As the country's demographic dividend gradually declines and the number of middle-income households grow, the potential for growth will diminish, and projections below 8% will become normal. Global trade growth will likely slow down to reflect the situation in China, and the International Monetary Fund lowered its 2013 global growth projection to 3.3% in April, down 0.2 percentage points from its January forecast. It cut its projection for 2013 global trade growth to 3.6% from 3.8%.
Financial policy will maintain neutral or slightly contractionary in China. First-quarter financial income grew just 6.9%, while finance expenditures grew 12.1%.
As the government introduces value-added tax to replace the current policies, tax income growth will be restricted, and will contain the expansion of future expenditure. Because money supply growth far exceeds GDP growth and the M2 growth target of 13%, the central bank's monetary policy will tend towards tightening, but the effects will be gradual as long as inflation is under control.
The renminbi has continued to hit new highs against the US dollar, affected by the depreciation of the Japanese yen and fund inflows. What is worth watching is when the central bank relaxes its renminbi fluctuation range to 2% from the current 1%. Major credit rating agencies such as Moody's and Fitch have repeatedly cut their ratings or outlook for the renminbi, indicating China's financial system's credit risks are growing.
(Cheng Cheng-mount is president of the Taiwan Academy of Banking and Finance/translated by WCT.)