China reports slight slowdown in growth; registers 7.4% growth in Q1

China finds itself in precarious position having to balance reform steps initiated last year, while at the same time keeping growth numbers high enough to fuel job growth.
By Ananth Baliga  |  April 16, 2014 at 12:49 PM
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BEIJING, April 16 (UPI) -- China's growth slowed to 7.4 percent for the first quarter but was still in line with the government's year-on-year growth projection of 7.5 percent for 2014.

The slowdown is a result of structural changes made by the government, moving the economy away from being credit-fueled towards being more consumption-dependent and supported by higher incomes. Growth fell from 7.7 percent in the last quarter of 2013, but the National Bureau of Statistics said that the growth was as expected and that rising incomes were more important than growth numbers.

Rural incomes in China grew 10.1 percent from a year ago, whereas urban incomes rose by 7.2 percent.

China has upped the reform process but it seems like the country will now focus more on stimulus measures. The country's central bank said that it would use monetary policy or "slightly bigger adjustment" measures to boost growth, if it fell to lower levels. China has already devalued its currency to help exporters and has announced major projects, involving building more railways, and tax cuts.

Economists argue that China's growth is actually slower than what's being reported. According to Capital Economics, a London research firm, China's economic activity slowed in the first quarter to 6 percent and to 6.3 percent in the fourth quarter last year.

"Growth is lower than the official estimates," said Qinwei Wang, a Capital Economics economist, but he said the slowdown "wasn't as bad as people feared; it isn't a hard landing."

Analysts say that stimulus measures could involve a deepening of targeted spending, including increased investment in transportation, urban renewal and alternate energy projects. This could mean reforms could have to take a back seat for the time being.

China's major concern is credit-fueled investment, which is a major part of the housing industry. China's housing industry accounts for 16 percent of the country's GDP. Restraint of credit is having some impact on deflating house prices, but at the same time is also having a dampening effect on industrial growth, which expanded at around 8%, the slowest pace since the 2009 global recession.

If one were to look at income as a gauge of economic health, China is doing better this year than it did last year. But the country will have to find a balance between using a sustainable growth model and keeping growth levels high enough to create jobs, which could be difficult as the economy slows.

[BBC] [The Wall Street Journal]

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